Capital Gains Tax Solutions Podcast The 1031 Exit Trap: How to Replace Debt and Defer Taxes Like the Top 1%
Jan 14, 2026
Dan Palmer, a real estate and tax-deferred exchange expert, dives into the intricacies of 1031 exchanges and Delaware Statutory Trusts. He emphasizes the critical issue of debt-over-basis and its impact on tax deferral strategies. The discussion compares the benefits of using DSTs for replacing debt versus Deferred Sales Trusts. Palmer highlights how zero-coupon DSTs provide unique cash flow options, along with effective strategies to maximize returns while navigating tax limitations effectively. This podcast is a must-listen for anyone looking to optimize their investment strategies!
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Use A Partial 1031 To Replace Debt
- Use a partial 1031 or DST + Delaware combo to replace debt and free remaining proceeds.
- Put just enough equity into a Delaware (often ~20%) to replace debt and route remaining proceeds into a Deferred Sales Trust.
Maximize Debt Replacement With Minimal Equity
- Aim to replace debt with minimal equity when using a Delaware zero-coupon DST.
- That structure prioritizes debt replacement over immediate cashflow to avoid ordinary-income tax on excess debt.
Weigh Pre-Close Paydown Vs DST Equity
- Consider paying down debt before closing if you have liquid funds to equalize basis.
- Compare opportunity cost: paying down now vs using less equity in a Delaware DST to free cash for other uses.
