Hypothetical Example
Unlocking Nearly $300,000 in Tax Deferral
Internal Revenue Code Sections 1031 and 721 offer tax-focused investors powerful tools to defer capital gains taxes—unlocking more capital for reinvestment. By leveraging these strategies, investors can expand their portfolios, sidestep immediate tax liabilities, and capitalize on new opportunities, all while fostering long-term growth and preserving wealth.
| No Exchange (Cash) | With 1031/721 Exchange | |
|---|---|---|
| Sales Proceeds | $1,000,000 | $1,000,000 |
| Mortgage Balance | ($0) | ($0) |
| Net Sales Proceeds | $1,000,000 | $1,000,000 |
| Original Cost | $100,000 | $100,000 |
| Adjusted Cost | $0 | $0 |
| Capital Gain | $900,000 | $900,000 |
| Depreciation Recapture ($100,000 x 25%) | ($25,000) | ($0) |
| Fed Tax on Gain ($900,000 x 20%) | ($180,000) | ($0) |
|
State Tax1 on Gain: National Average State Tax Rate ($900,000 x 4.94%) National High State Tax Rate ($900,000 x 13.3%) National Low State Tax Rate ($900,000 x 0%) |
($44,460) ($119,700) ($0) |
($0) ($0) ($0) |
| Medicare Tax ($1,000,000 x 3.8%) | ($38,000) | ($0) |
| Funds Available for Reinvestment | $712,540* | $1,000,000 |
| Value After 10 Years** | $1,054,733 | $1,480,244 |
The hypothetical scenario assumes an investor is selling their property and has the option to cash out or invest in a DST. The up-front costs and expenses of an investment in a DST are not reflected in this example. This is not intended as tax advice. Prospective investors should consult with their own tax advisor.
1 https://taxfoundation.org/data/all/state/state-capital-gains-tax-rates-2024/
*Assuming national average state tax rate.
**Assuming 4% appreciation on investment.