A few years ago, we helped a client sell her highly appreciated rental property, avoid capital gains tax, and simplify her financial life. All while diversifying her Southern California real estate exposure.

The gain on this property was ~3X the purchase price and at the highest Fed/CA combined capital gains rate (37.1%), the tax bill was a bit too steep for her taste.

If she sold the property and reinvested the proceeds in another property, she would have avoided the tax. But she’d also have to manage the property, a task inconsistent with her goal of keeping things simple.

What did she do instead? She sold the property and reinvested the proceeds into three Delaware Statutory Trusts (no attorney required), each located in a different state.

This sounds complicated but think of it as buying a small portion of an apartment building alongside 100 other investors. Since the apartment building is professionally managed by a large institutional real estate firm, she can sit back, relax and collect a ~5% dividend from each property.

While certainly not for everyone, this move fit her tax savings, cash flow and diversification goals while freeing up valuable ‘play’ time.

Cheers!

Disclaimer: For information purposes only and should not be interpreted as legal, tax or financial advice. Always consult your CPA/tax advisor/attorney (or reach out to us;) to discuss your specific situation.