Tax-Saving Strategies

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Tax-Saving Strategies

Tax-deferred exchanges and tax-deferred investing could be good options for you to build wealth and reduce your tax burden. Contact EagleStone to learn more.

Tax-Deferred Exchange: 1031

1031 Exchange – Decades Of Knowledge & Experience

The 1031 exchange is a unique solution that offers our clients many benefits. It is one example of the many types of opportunities that only come from dealing with the entirety of your financial picture, from accounting and tax issues, to financial planning and investments.

What is a 1031 Exchange?

A 1031 Exchange is named after a section of the IRS code that allows for an investor to sell a property that they own, and invest those proceeds into another property; while deferring the taxable gains that would normally be paid on the sale of the property.

What are the benefits to you?

Do you have an appreciated investment property that you want or need to sell, that could leave you with a large tax bill?

It is not uncommon for someone to have a property that has appreciated significantly in value but the monthly income is much lower than it could be. Selling that property under the 1031 exchange rules could potentially get you out of a dead asset and into a higher income producing one, while deferring the taxes due on the sale, and having more money to reinvest into the new property.

Are you managing an investment property yourself and find it to be a miserable process?

If you own property that you also manage, you may be familiar with some of the problems that arise. You may be tired of dealing with late paying tenants, getting phone calls for repairs at all hours of the day and night, dealing with the hassle of always keeping a property leased out, cleaning and repairs after someone vacates the property, and all of the legal and tax issues that can come with managing the property on your own. With a 1031 exchange, you could remove all of those hassles from your life, and still potentially increase your monthly income, with a more desirable property and a much higher quality tenant.

Is your real estate portfolio taking on too much risk by not being diversified?

If you have several properties that are in one geographical area, or are of a specific type, it can often leave you open to risks if problems arise. Processing a 1031 exchange could give you the ability to diversify your assets across many different geographical areas as well as various asset types, such as; retail, industrial, multifamily, apartment complex & office buildings.

Why should you choose Eaglestone Tax & Wealth Advisors to help you with your 1031 exchange?

Decades of Knowledge & Experience

The rules of processing a 1031 exchange can get very complicated. As a comprehensive financial services firm, we have decades of experience dealing with the accounting, tax, financial planning, and legal issues related to 1031 exchanges and are prepared to quarterback this process for you from start to finish. Not only do we have the knowledge and experience, our regulatory records speak for themselves. In all of our years in business, we have no employees with any disclosure events, which is something that we are very proud of.

High Quality, Fully Vetted Properties

Our 1031 inventory is made up of properties that are not available to the general public. They are not crowd funded. An extensive amount of due diligence has been done, by experts, on each and every one of our properties to make sure that everything is right. These properties are some of the most beautiful assets in the country and are of many different asset types such as; retail, industrial, multifamily, apartment complex & office buildings. In addition, they often have long term leases with high quality tenants which leads to long term stable properties and stable income.

Designed for a Competitive, Stable Income Stream

The 1031 exchanges that we provide to our clients are designed to offer a competitive yet stable annual distribution (payable monthly via direct deposit).

1031 Exchange – The Basics

What are the basics of a 1031 Exchange?

The 1031 exchange was created with Internal Revenue Code Section 1031(a)(1) which says:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

So what does that really mean?

There are two key terms to that statement above that should be clarified further for complete understanding.

Exchange

The word exchange is important because the transaction must be an exchange and not a sell and a purchase. When doing an exchange you must identify the replacement property following a specific process that has its own set of rules as provided by the IRS.

To be considered an exchange, there is a 45 day time restriction from the sale of the first property to the date that the replacement property is closed on, or at a minimum the replacement property must be formally and unambiguously identified and described. If the replacement property is simply identified by the 45 day deadline, it must be received and the exchange completed within 180 days or by the due date of the income tax return, including extensions, for the tax year in which the initial property was relinquished.

In addition to the time restrictions, when title is taken on the replacement property it must be titled in the same way that the relinquished property was titled.

Like-Kind

The property received in the exchange must be of “like-kind” to the relinquished property. There are volumes of information written on what is considered a like-kind property. Here is an abbreviated definition from the IRS themselves:

“Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However,…personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.

Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.”

The bottom line here is that the properties must be considered “like-kind” in order to qualify for 1031 exchange tax treatment. Like just about everything the IRS does, the rules can get complicated, but they do offer a lot of flexibility on what is considered a like kind property.

1031 Exchange – Do’s And Don’ts

There are many rules and regulations related to the 1031 exchange, but here are a handful of Do’s and Don’ts to keep in mind when navigating through this process.

Do’s and Dont’s

DO advanced planning for the exchange. Talk to your accountant, attorney, broker, financial planner, lender and Qualified Intermediary prior to processing a 1031 exchange.

DO NOT miss your identification and exchange deadlines. Failure to identify within the 45 day identification period or failure to acquire replacement property within the 180 day exchange period will disqualify the entire exchange resulting in the sale of the relinquished property being fully taxable. Reputable Intermediaries will not act on back-dated or late identifications.

DO keep in mind these three basic rules to qualify for complete tax deferral:

  • Receive only “like-kind” replacement property.
  • Use all proceeds from the relinquished property for purchasing the replacement property.
  • Make sure the debt on the replacement property is equal to or greater than the debt on the relinquished property.

(Exception: A reduction in debt can be offset with additional cash; however, a reduction in equity cannot be offset by increasing debt).

DO NOT try doing a 1031 exchange using your attorney or CPA to hold title or funds. IRS regulation requires a Qualified Intermediary to properly complete an exchange.

DO attempt to sell before you purchase. Occasionally exchangers find the ideal replacement property before a buyer is found for the relinquished property. If this situation occurs, a “reverse” exchange (buying before selling) may be necessary.

DO NOT dissolve partnerships or change the manner of holding title during the exchange. A change in the Exchanger’s legal relationship with the property may jeopardize the exchange.

Do report the exchange using IRS form 8824 in the year the exchange was made.

DO NOT take personal control of any sale proceeds before the exchange is done. This void the exchange and cause all sale proceeds to be immediately taxable.

1031 Exchange – What Is A Qualified Intermediary? (QI)

As we have already mentioned in previous articles in this section, the 1031 exchange process is a complex one with many rules and regulations that must be followed properly. In order to make sure that this process is handled correctly, in most cases, the use of something called a “Qualified Intermediary” is required to manage the process.

Identifying who will be the Qualified Intermediary (QI), also sometimes referred to as the accommodator or facilitator, is usually one of the first steps in the 1031 exchange process and their role is very clearly defined by the IRS code.

The Qualified Intermediary (QI) is responsible for:

1. Acquiring the real estate property from the taxpayer.

2. Transferring the real estate property to the buyer.

3. Acquiring the replacement property from the seller.

4. Transferring the replacement property to the taxpayer.

This means that they will be responsible for the 1031 exchange process from the beginning and will be responsible for receiving and safeguarding of the funds from the initial property sale, and distributing them with the subsequent purchase.

In addition, the Qualified Intermediary (QI), must be an independent organization that has no other contact with the person exchanging the property with the exception of processing the transaction. This means that friends, relatives, and even your own CPA or attorney are not allowed.
Due to the importance of getting this right, we recommend that you follow some simple advice when selecting a Qualified Intermediary (QI) to handle your 1031 exchange:

1. As mentioned above, you must not use someone that you have conducted personal business with before for other purposes. This must be done by an independent 3rd party.

2. Make sure that your Qualified Intermediary (QI) is bonded and insured. Also, check to make sure that they are current on their payments so if something goes wrong, they have the ability to fix it. We typically recommend that our clients select a large national company with strong financials. Since they are in charge of your funds during this process, you want to make sure that your assets are safe.
(FL)_Verizon_Store-Jacksonville-FL

3. Make sure that the Qualified Intermediary (QI) that you select has a lot of experience handling 1031 exchanges. This is an obvious one, but often overlooked. You want to make sure that the company that you choose has a strong history of successful transactions. This way, you can be relatively sure that they have seen situations like yours before and know how to handle them.

Of course, we would be happy to help you to identify the right Qualified Intermediary (QI) to facilitate your 1031 exchange. This is a service that we regularly provide to our clients as we help them navigate through this process.

1031 Exchange – What Is A DST Or Delaware Statutory Trust?

What is a DST or Delaware Statutory Trust and what are the benefits to you?

Many of our clients are liquidating “self managed” real estate properties and are no longer interested in handling the day-to-day management. In addition, since it is typically safer to diversify their interests into multiple properties, as opposed to only owning a single property in a single market, when processing a 1031 exchange, choosing to use a Delaware Statutory Trust (DST) is a great option for them.

Put simply a Delaware Statutory Trust (DST) is a legal entity that is formed for the purpose of holding title to properties purchased. This trust will assign a trustee to handle the many day-to-day operations that are necessary and will own title to 100% of the interest in the property or properties acquired. In processing a 1031 exchange using a DST, your qualified intermediary (QI) would take the funds from liquidation of the initial property and place the funds into the DST and you would receive a beneficial interest in the newly formed trust.

Using a DST gives you the following benefits:

– A DST gives you the ability to pool your funds from the sale of your property with the funds of other people to purchase some very impressive assets that, due to their size and uniqueness, are sought out by larger corporations that tend to sign longer and more profitable leases.

– The DST is the single owner and borrower. The lender only underwrites the DST, not each individual investor; therefore, the loan is nonrecourse to the investor. Investors purchasing a property on their own may have to arrange for financing and may be required to provide personal guarantees.

– The transfer of beneficial interests in a DST can be easier as there is generally less paperwork and time required than buying a property directly.

– A typical minimum investment of $100,000 allows more flexibility for investors to diversify their exchange into several properties compared to trying to purchase a property directly.

– The DST allows cash investors (non-1031) the option to complete a 1031 tax deferred exchange when the current property is sold.

– Investors are not required to sign on guarantees for non-recourse carve-outs on the loan that they might have with direct ownership.

While having many benefits, the DST may not be right for all investors as tax laws can change over time and, like real estate, a DST can have limited liquidity. This is another reason why working with someone that has years of experience in dealing with all aspects of 1031 exchanges is a good idea.

Tax-Deductible Investing: Natural Gas and QOZ

Natural Gas Tax-Incentivized Investments

Natural Gas Limited Partnership

What is it?

Investing in natural gas limited partnerships serves several different objectives. First, such an investment can further a strategy of asset allocation and portfolio diversification. Studies comparing the behavior of natural gas prices with that of stocks suggest an inverse relationship — their prices often move in opposite directions. In times of inflation, a natural gas investment can serve as a beneficial hedge. Second, investors who are willing and able to assume substantial investment risk have the potential for large gains from investing in natural gas interests, particularly with drilling ventures. Third, the deductions accompanying natural gas interests may help to lower your overall taxes. And finally, if you have passive gains from another source, you may take advantage of passive losses from natural gas limited partnerships.

Strengths

Significant up-front deductions
Often, investors can take first-year income tax deductions for the intangible drilling and development costs associated with drilling the wells. Because a high percentage of your initial investment can go to pay these intangible costs, such deductions may be substantial, often exceeding 80 percent of the initial investmentand is often the primary reason to invest.

Definition of depletion allowance
The depletion allowance is a type of deduction for limited partners receiving income from investments in natural resources, such as natural gas. You are entitled to take annual deductions for the depletion of energy reserves to compensate you for the part exhausted in production

Tax shelter (to some extent)
If you take deductions for percentage depletion and intangible drilling costs, your otherwise taxable income (whether in the form of cash distributions from the natural gas program, or from other sources) will be sheltered to the extent of those deductions. It is possible that deductions for depreciation, interest, taxes, and operating expenses may flow through as well.

Risks

Illiquidity
Private limited partnership shares are illiquid. As a result, investors must be prepared to hold on to their shares for several years or face selling at a loss. The lifespan will typically run anywhere from 10 to 15 years.

High risk
The safety of your principal depends on the type of limited partnership and quality of its holdings. Programs aimed at high capital gains involve commensurate risk. There is risk regarding whether natural gas will be found at all and, if found, whether the well will dry up sooner than expected.

Subject to recapture rules and potential alternative minimum tax (AMT) liability
Certain tax breaks associated with natural gas limited partnerships are recaptured by the IRS when the underlying asset is sold. For example, if tangible property is sold, all depreciation is recaptured and taxed at the time of the sale.

Note, also, that natural gas limited partnership losses may have alternative minimum tax (AMT) implications.

About Natural Gas

Natural gas is a relatively clean burning fossil fuel. Burning natural gas for energy results in fewer emissions — of nearly all types of air pollutants and carbon dioxide (CO2) — than burning coal or petroleum products to produce an equal amount of energy. The clean burning properties of natural gas have contributed to increased natural gas use for electricity generation and as a transportation fuel for fleet vehicles in the United States.

About MDS Energy Development

ESTWA works with MDS Energy Development to establish natural gas limited partnerships for clients. MDS has supported ESG* investing for many years. For example, the abundant supply of clean burning natural gas has enabled MDS to fuel much of their equipment to develop the wells. In addition, all MDS’s fleet vehicles run on natural gas, and their drilling rigs are dual fuel, which means using natural gas. The immediate benefits are reduced expenses for the projects and a small carbon footprint.

*ESG Investing (also known as “socially responsible investing,” “impact investing” and “sustainable investing”) refers to investing which prioritizes optimal environmental, social and governance (ESG) factors or outcomes.

Qualified Opportunity Zone Investing

Qualified Opportunity Zone Program

Discover a new tax-advantaged investment strategy

The Qualified Opportunity Zone Program (“QOZ Program”), created by the Tax Cuts and Jobs Act of 2017, is a tax-incentive program designed to encourage long-term private sector investments in designated communities known as Qualified Opportunity Zones by delivering certain tax benefits to investors through investment vehicles called Qualified Opportunity Funds.Investments in Qualified Opportunity Funds are intended to help drive real estate development, job creation and overall economic growth in lower income communities.

What is a QOZ? Qualified Opportunity Zones are designated census tracts throughout the United States that have been selected by state governors for inclusion in the program.

What is a QOF? Qualified Opportunity Funds are investment vehicles that invest at least 90% of their assets in qualified businesses or real property located within these Qualified Opportunity Zones.

Do I qualify for this program? This program works fortaxpayers or individuals who recently sold an investment (stock, bond, or property, for example) where they have a capital gain.Within a 180-day period from the date of the sale, they can invest the gains from their previous investment in a Qualified Opportunity Fund (QOF); they will achieve potential tax benefits and defer paying capital gains tax until 2026.

How long will my investment be held? The investment hold time is ~10 years. If the QOZ fund is held for 10 years, any capital gains resulting from the investment in the QOZ fund is not taxed.Contact EagleStone[redirects to contact form with phone number] today to learn more about this unique tax-advantaged program and how it might benefit you.

The Qualified Opportunity Zone rules are new and the U.S. Department of Treasury and the Internal Revenue Service have issued regulations, but many questions remain unanswered and changes to the QOZ Program could impact investments in Quality Opportunity Zones in unintended ways or potentially reverse the tax benefits provided thereunder.

Contact us to learn more

Tarun Mehta, JD/MBA

President & Chief Compliance Officer

Joseph Lager, CPA, CDFA®

Director of Tax & Accounting

Main Phone: 301-924-2160


Tax-Saving Strategies

Tax-deferred exchanges and tax-deferred investing could be good options for you to build wealth and reduce your tax burden. Contact EagleStone to learn more.

1031 Exchange – Decades Of Knowledge & Experience

The 1031 exchange is a unique solution that offers our clients many benefits. It is one example of the many types of opportunities that only come from dealing with the entirety of your financial picture, from accounting and tax issues, to financial planning and investments.

What is a 1031 Exchange?

A 1031 Exchange is named after a section of the IRS code that allows for an investor to sell a property that they own, and invest those proceeds into another property; while deferring the taxable gains that would normally be paid on the sale of the property.

What are the benefits to you?

Do you have an appreciated investment property that you want or need to sell, that could leave you with a large tax bill?

It is not uncommon for someone to have a property that has appreciated significantly in value but the monthly income is much lower than it could be. Selling that property under the 1031 exchange rules could potentially get you out of a dead asset and into a higher income producing one, while deferring the taxes due on the sale, and having more money to reinvest into the new property.

Are you managing an investment property yourself and find it to be a miserable process?

If you own property that you also manage, you may be familiar with some of the problems that arise. You may be tired of dealing with late paying tenants, getting phone calls for repairs at all hours of the day and night, dealing with the hassle of always keeping a property leased out, cleaning and repairs after someone vacates the property, and all of the legal and tax issues that can come with managing the property on your own. With a 1031 exchange, you could remove all of those hassles from your life, and still potentially increase your monthly income, with a more desirable property and a much higher quality tenant.

Is your real estate portfolio taking on too much risk by not being diversified?

If you have several properties that are in one geographical area, or are of a specific type, it can often leave you open to risks if problems arise. Processing a 1031 exchange could give you the ability to diversify your assets across many different geographical areas as well as various asset types, such as; retail, industrial, multifamily, apartment complex & office buildings.

Why should you choose Eaglestone Tax & Wealth Advisors to help you with your 1031 exchange?

Decades of Knowledge & Experience

The rules of processing a 1031 exchange can get very complicated. As a comprehensive financial services firm, we have decades of experience dealing with the accounting, tax, financial planning, and legal issues related to 1031 exchanges and are prepared to quarterback this process for you from start to finish. Not only do we have the knowledge and experience, our regulatory records speak for themselves. In all of our years in business, we have no employees with any disclosure events, which is something that we are very proud of.

High Quality, Fully Vetted Properties

Our 1031 inventory is made up of properties that are not available to the general public. They are not crowd funded. An extensive amount of due diligence has been done, by experts, on each and every one of our properties to make sure that everything is right. These properties are some of the most beautiful assets in the country and are of many different asset types such as; retail, industrial, multifamily, apartment complex & office buildings. In addition, they often have long term leases with high quality tenants which leads to long term stable properties and stable income.

Designed for a Competitive, Stable Income Stream

The 1031 exchanges that we provide to our clients are designed to offer a competitive yet stable annual distribution (payable monthly via direct deposit).

1031 Exchange – The Basics

What are the basics of a 1031 Exchange?

The 1031 exchange was created with Internal Revenue Code Section 1031(a)(1) which says:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

So what does that really mean?

There are two key terms to that statement above that should be clarified further for complete understanding.

Exchange

The word exchange is important because the transaction must be an exchange and not a sell and a purchase. When doing an exchange you must identify the replacement property following a specific process that has its own set of rules as provided by the IRS.

To be considered an exchange, there is a 45 day time restriction from the sale of the first property to the date that the replacement property is closed on, or at a minimum the replacement property must be formally and unambiguously identified and described. If the replacement property is simply identified by the 45 day deadline, it must be received and the exchange completed within 180 days or by the due date of the income tax return, including extensions, for the tax year in which the initial property was relinquished.

In addition to the time restrictions, when title is taken on the replacement property it must be titled in the same way that the relinquished property was titled.

Like-Kind

The property received in the exchange must be of “like-kind” to the relinquished property. There are volumes of information written on what is considered a like-kind property. Here is an abbreviated definition from the IRS themselves:

“Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However,…personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.

Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.”

The bottom line here is that the properties must be considered “like-kind” in order to qualify for 1031 exchange tax treatment. Like just about everything the IRS does, the rules can get complicated, but they do offer a lot of flexibility on what is considered a like kind property.

1031 Exchange – Do’s And Don’ts

There are many rules and regulations related to the 1031 exchange, but here are a handful of Do’s and Don’ts to keep in mind when navigating through this process.

Do’s and Dont’s

DO advanced planning for the exchange. Talk to your accountant, attorney, broker, financial planner, lender and Qualified Intermediary prior to processing a 1031 exchange.

DO NOT miss your identification and exchange deadlines. Failure to identify within the 45 day identification period or failure to acquire replacement property within the 180 day exchange period will disqualify the entire exchange resulting in the sale of the relinquished property being fully taxable. Reputable Intermediaries will not act on back-dated or late identifications.

DO keep in mind these three basic rules to qualify for complete tax deferral:

  • Receive only “like-kind” replacement property.
  • Use all proceeds from the relinquished property for purchasing the replacement property.
  • Make sure the debt on the replacement property is equal to or greater than the debt on the relinquished property.

(Exception: A reduction in debt can be offset with additional cash; however, a reduction in equity cannot be offset by increasing debt).

DO NOT try doing a 1031 exchange using your attorney or CPA to hold title or funds. IRS regulation requires a Qualified Intermediary to properly complete an exchange.

DO attempt to sell before you purchase. Occasionally exchangers find the ideal replacement property before a buyer is found for the relinquished property. If this situation occurs, a “reverse” exchange (buying before selling) may be necessary.

DO NOT dissolve partnerships or change the manner of holding title during the exchange. A change in the Exchanger’s legal relationship with the property may jeopardize the exchange.

Do report the exchange using IRS form 8824 in the year the exchange was made.

DO NOT take personal control of any sale proceeds before the exchange is done. This void the exchange and cause all sale proceeds to be immediately taxable.

1031 Exchange – What Is A Qualified Intermediary? (QI)

As we have already mentioned in previous articles in this section, the 1031 exchange process is a complex one with many rules and regulations that must be followed properly. In order to make sure that this process is handled correctly, in most cases, the use of something called a “Qualified Intermediary” is required to manage the process.

Identifying who will be the Qualified Intermediary (QI), also sometimes referred to as the accommodator or facilitator, is usually one of the first steps in the 1031 exchange process and their role is very clearly defined by the IRS code.

The Qualified Intermediary (QI) is responsible for:

1. Acquiring the real estate property from the taxpayer.

2. Transferring the real estate property to the buyer.

3. Acquiring the replacement property from the seller.

4. Transferring the replacement property to the taxpayer.

This means that they will be responsible for the 1031 exchange process from the beginning and will be responsible for receiving and safeguarding of the funds from the initial property sale, and distributing them with the subsequent purchase.

In addition, the Qualified Intermediary (QI), must be an independent organization that has no other contact with the person exchanging the property with the exception of processing the transaction. This means that friends, relatives, and even your own CPA or attorney are not allowed.
Due to the importance of getting this right, we recommend that you follow some simple advice when selecting a Qualified Intermediary (QI) to handle your 1031 exchange:

1. As mentioned above, you must not use someone that you have conducted personal business with before for other purposes. This must be done by an independent 3rd party.

2. Make sure that your Qualified Intermediary (QI) is bonded and insured. Also, check to make sure that they are current on their payments so if something goes wrong, they have the ability to fix it. We typically recommend that our clients select a large national company with strong financials. Since they are in charge of your funds during this process, you want to make sure that your assets are safe.
(FL)_Verizon_Store-Jacksonville-FL

3. Make sure that the Qualified Intermediary (QI) that you select has a lot of experience handling 1031 exchanges. This is an obvious one, but often overlooked. You want to make sure that the company that you choose has a strong history of successful transactions. This way, you can be relatively sure that they have seen situations like yours before and know how to handle them.

Of course, we would be happy to help you to identify the right Qualified Intermediary (QI) to facilitate your 1031 exchange. This is a service that we regularly provide to our clients as we help them navigate through this process.

1031 Exchange – What Is A DST Or Delaware Statutory Trust?

What is a DST or Delaware Statutory Trust and what are the benefits to you?

Many of our clients are liquidating “self managed” real estate properties and are no longer interested in handling the day-to-day management. In addition, since it is typically safer to diversify their interests into multiple properties, as opposed to only owning a single property in a single market, when processing a 1031 exchange, choosing to use a Delaware Statutory Trust (DST) is a great option for them.

Put simply a Delaware Statutory Trust (DST) is a legal entity that is formed for the purpose of holding title to properties purchased. This trust will assign a trustee to handle the many day-to-day operations that are necessary and will own title to 100% of the interest in the property or properties acquired. In processing a 1031 exchange using a DST, your qualified intermediary (QI) would take the funds from liquidation of the initial property and place the funds into the DST and you would receive a beneficial interest in the newly formed trust.

Using a DST gives you the following benefits:

– A DST gives you the ability to pool your funds from the sale of your property with the funds of other people to purchase some very impressive assets that, due to their size and uniqueness, are sought out by larger corporations that tend to sign longer and more profitable leases.

– The DST is the single owner and borrower. The lender only underwrites the DST, not each individual investor; therefore, the loan is nonrecourse to the investor. Investors purchasing a property on their own may have to arrange for financing and may be required to provide personal guarantees.

– The transfer of beneficial interests in a DST can be easier as there is generally less paperwork and time required than buying a property directly.

– A typical minimum investment of $100,000 allows more flexibility for investors to diversify their exchange into several properties compared to trying to purchase a property directly.

– The DST allows cash investors (non-1031) the option to complete a 1031 tax deferred exchange when the current property is sold.

– Investors are not required to sign on guarantees for non-recourse carve-outs on the loan that they might have with direct ownership.

While having many benefits, the DST may not be right for all investors as tax laws can change over time and, like real estate, a DST can have limited liquidity. This is another reason why working with someone that has years of experience in dealing with all aspects of 1031 exchanges is a good idea.

Natural Gas Tax-Incentivized Investments

Natural Gas Limited Partnership

What is it?

Investing in natural gas limited partnerships serves several different objectives. First, such an investment can further a strategy of asset allocation and portfolio diversification. Studies comparing the behavior of natural gas prices with that of stocks suggest an inverse relationship — their prices often move in opposite directions. In times of inflation, a natural gas investment can serve as a beneficial hedge. Second, investors who are willing and able to assume substantial investment risk have the potential for large gains from investing in natural gas interests, particularly with drilling ventures. Third, the deductions accompanying natural gas interests may help to lower your overall taxes. And finally, if you have passive gains from another source, you may take advantage of passive losses from natural gas limited partnerships.

Strengths

Significant up-front deductions
Often, investors can take first-year income tax deductions for the intangible drilling and development costs associated with drilling the wells. Because a high percentage of your initial investment can go to pay these intangible costs, such deductions may be substantial, often exceeding 80 percent of the initial investmentand is often the primary reason to invest.

Definition of depletion allowance
The depletion allowance is a type of deduction for limited partners receiving income from investments in natural resources, such as natural gas. You are entitled to take annual deductions for the depletion of energy reserves to compensate you for the part exhausted in production

Tax shelter (to some extent)
If you take deductions for percentage depletion and intangible drilling costs, your otherwise taxable income (whether in the form of cash distributions from the natural gas program, or from other sources) will be sheltered to the extent of those deductions. It is possible that deductions for depreciation, interest, taxes, and operating expenses may flow through as well.

Risks

Illiquidity
Private limited partnership shares are illiquid. As a result, investors must be prepared to hold on to their shares for several years or face selling at a loss. The lifespan will typically run anywhere from 10 to 15 years.

High risk
The safety of your principal depends on the type of limited partnership and quality of its holdings. Programs aimed at high capital gains involve commensurate risk. There is risk regarding whether natural gas will be found at all and, if found, whether the well will dry up sooner than expected.

Subject to recapture rules and potential alternative minimum tax (AMT) liability
Certain tax breaks associated with natural gas limited partnerships are recaptured by the IRS when the underlying asset is sold. For example, if tangible property is sold, all depreciation is recaptured and taxed at the time of the sale.

Note, also, that natural gas limited partnership losses may have alternative minimum tax (AMT) implications.

About Natural Gas

Natural gas is a relatively clean burning fossil fuel. Burning natural gas for energy results in fewer emissions — of nearly all types of air pollutants and carbon dioxide (CO2) — than burning coal or petroleum products to produce an equal amount of energy. The clean burning properties of natural gas have contributed to increased natural gas use for electricity generation and as a transportation fuel for fleet vehicles in the United States.

About MDS Energy Development

ESTWA works with MDS Energy Development to establish natural gas limited partnerships for clients. MDS has supported ESG* investing for many years. For example, the abundant supply of clean burning natural gas has enabled MDS to fuel much of their equipment to develop the wells. In addition, all MDS’s fleet vehicles run on natural gas, and their drilling rigs are dual fuel, which means using natural gas. The immediate benefits are reduced expenses for the projects and a small carbon footprint.

*ESG Investing (also known as “socially responsible investing,” “impact investing” and “sustainable investing”) refers to investing which prioritizes optimal environmental, social and governance (ESG) factors or outcomes.

Qualified Opportunity Zone Investing

Qualified Opportunity Zone Program

Discover a new tax-advantaged investment strategy

The Qualified Opportunity Zone Program (“QOZ Program”), created by the Tax Cuts and Jobs Act of 2017, is a tax-incentive program designed to encourage long-term private sector investments in designated communities known as Qualified Opportunity Zones by delivering certain tax benefits to investors through investment vehicles called Qualified Opportunity Funds.Investments in Qualified Opportunity Funds are intended to help drive real estate development, job creation and overall economic growth in lower income communities.

What is a QOZ? Qualified Opportunity Zones are designated census tracts throughout the United States that have been selected by state governors for inclusion in the program.

What is a QOF? Qualified Opportunity Funds are investment vehicles that invest at least 90% of their assets in qualified businesses or real property located within these Qualified Opportunity Zones.

Do I qualify for this program? This program works fortaxpayers or individuals who recently sold an investment (stock, bond, or property, for example) where they have a capital gain.Within a 180-day period from the date of the sale, they can invest the gains from their previous investment in a Qualified Opportunity Fund (QOF); they will achieve potential tax benefits and defer paying capital gains tax until 2026.

How long will my investment be held? The investment hold time is ~10 years. If the QOZ fund is held for 10 years, any capital gains resulting from the investment in the QOZ fund is not taxed.Contact EagleStone[redirects to contact form with phone number] today to learn more about this unique tax-advantaged program and how it might benefit you.

The Qualified Opportunity Zone rules are new and the U.S. Department of Treasury and the Internal Revenue Service have issued regulations, but many questions remain unanswered and changes to the QOZ Program could impact investments in Quality Opportunity Zones in unintended ways or potentially reverse the tax benefits provided thereunder.

Tarun Mehta, JD/MBA

President & Chief Compliance Officer

Joseph Lager, CPA, CDFA®

Director of Tax & Accounting

Main Phone: 301-924-2160

Contact Us

Get in touch with one of our professionals to discuss your needs.


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Securities offered through DAI Securities, LLC. Member FINRA/SIPC. Advisory Services offered through EagleStone Tax & Wealth Advisors. EagleStone Tax & Wealth Advisors is not affiliated with DAI Securities. Financial planning, investment and wealth management services provided through EagleStone Wealth Advisors, Inc. Tax and accounting services provided through EagleStone Tax & Accounting Services.

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