If you are considering a Delaware Statutory Trust 1031, it is important that you understand equity and capital gain. These are critical factors for you to determine in order to make informed decisions on your investment. We will take you through a guided process in order to calculate these numbers and explain what exactly this means for your Delaware Statutory Trusts and 1031 exchanges. 

First, we will explain how to measure equity and capital gain. 

Your capital gain measurement can be acquired based on your cost basis. You will need to find the purchase price for your property investment in order to make these calculations.  

Cost Basis

The initial purchase price of your property is the foundation of your cost basis. However, this number will evolve as time passes. Some factors that affect the cost basis are property improvements you’ve made since your investment or deductions for depreciation. In order to calculate the current cost basis number, also known as the adjusted basis, you will need to take your initial purchase price and add or subtract values as they apply to your property. For example, if improvements were made, you will add that amount to the original purchase price. If there was any depreciation, you must subtract that from the purchase price. The final net amount will be your cost basis/adjusted basis.   

Equity

For a Delaware Statutory Trust 1031, equity is the value that has been earned for property investment. In order to calculate this number, you must first subtract closing costs from the gross selling price. Then, you must determine if there is any remaining debt. Once you have determined this, you will finally subtract the remaining debt amounts in order to come to your equity number.

Capital Gain

Capital gain for a Delaware Statutory Trust 1031 can be found with a simple equation. Now that you have your cost basis/adjusted basis number, you can subtract this from your net selling price. Also, be sure to subtract any closing expenses. This will leave you with your capital gain number.   

Delaware Statutory Trusts and 1031 exchanges can also work for a tax-free transaction if you follow these two tips: 

1. Make sure that the replacement property for your Delaware Statutory Trust 1031 is greater than or equal to the value of the net selling price of the original property.
2. Transfer equity from the previous property to the new one. 

We would like to remind you that even though we have researched this information and believe it to be accurate and true to nature, you should remember that every form of investment, which includes real estate is speculation by its nature.  This involves a risk of significant losses. Also, non-publicly traded private placements of securities can be liable to a necessary period of holding. They are designed for investors that are accredited already and will not need a liquid investment.