If you’ve lived in (and owned) your home for 20 or 30 years here in the Bay Area, you might be sitting on a huge amount of equity. That’s great — until you go to sell and realize the capital gains tax could take a serious bite out of your nest egg.
If you’re married and selling your primary residence, you can exclude up to $500,000 of capital gains from taxes. But in this market, it’s not unusual to see $2M+ in appreciation on a longtime home. That’s when sellers come to me, wondering: Is there a legal way to avoid paying taxes on the rest of that gain?
The answer might surprise you — yes, there is. And it’s called a Deferred Sales Trust, or DST for short.
What Is a Deferred Sales Trust?
I recently sat down with Ariocha Salas from Move Money Safely, who specializes in tax strategies like DSTs. Unlike a 1031 exchange (which only works for investment properties), a Deferred Sales Trust can be used on your primary residence.
Here’s the basic idea: the IRS has a section of the tax code — IRC 453 — that says if you don’t receive all of your sale proceeds up front, and instead get paid in installments, you can defer the capital gains taxes. That’s what the DST does.
You first sell your property to a specially-created trust, which then sells the property to the actual buyer. Since you didn’t directly receive the proceeds, you don’t have to pay capital gains tax right away. Instead, you hold a note (think of it like a promissory note) and receive payments over time — and only pay taxes as you receive those payments.
The trust, managed by licensed professionals, invests the funds on your behalf. It can even pay you a set interest rate (like 7%–8%) over time. You keep more of your equity working for you, instead of handing a huge chunk to the IRS.
Real-World Example
Ariocha shared a great case study. A woman had lived in her Bay Area home for 30 years. She bought it for around $600K, and today it’s worth about $3M. That’s a $2.4M gain, and after her $500K exemption, she was looking at possibly $800,000 in taxes.
She didn’t owe anything on the house and wanted to downsize and live closer to her grandkids — who lived in three different states. The capital gains tax was making that dream feel out of reach.
With a DST, she was able to defer those taxes, take out her original $600K basis tax-free, and use it to buy two smaller homes. The rest of her equity went into the DST, which now pays her income for life — and she didn’t lose that $800K to the IRS.
Your Neighbor Sold their House too Cheap!
Who Can Use a Deferred Sales Trust?
You don’t need to be ultra-wealthy or elderly to use one. If you’ve owned any kind of appreciated asset — a home, business, investment property, or even crypto or art — you may qualify. It’s especially helpful for longtime homeowners here in Silicon Valley and the Bay Area who are looking to cash out but don’t want to get hit with a massive tax bill.
What About Costs?
One of the best parts? DSTs are often less expensive than paying the tax. Ariocha broke it down like this: if you’re selling a $1M asset, the capital gains taxes could easily hit $370,000 or more in California. In contrast, the tax attorneys who set up the DST typically charge 1.5% of the trust amount — about $15,000 — plus a small annual trustee fee. That’s a massive difference.
As Ariocha put it: “Would you rather do business with the IRS or with someone who can help you keep most of your money working for you?”
How Long Does It Take to Set Up?
If you’re thinking about selling, timing is key. The DST has to be in place before your sale closes. Ideally, I’d connect you with Ariocha and his team right after we sign the listing agreement, so you have a few weeks to learn the structure, ask questions, and make sure it’s the right fit.
In a pinch, though, they can get a DST up and running in as little as 7–10 days.
When Renting Out a Home Doesn’t Make Sense
One more example that hit home for me: Ariocha helped a family friend who needed to move into an assisted living facility. Her house could rent for around $5,000/month, but the care home cost $12,000/month — and she had over $2M in equity tied up in the home.
Rather than rent and lose money each month, they sold using a DST. Now that equity is invested and paying her a monthly income stream, giving her financial stability for years to come — without handing over hundreds of thousands to the IRS.
Final Thoughts
If you’re sitting on a lot of equity and thinking of selling — but the idea of a huge tax bill is keeping you stuck — let’s talk. A Deferred Sales Trust isn’t for everyone, but in the right situation, it’s a powerful way to unlock your equity, preserve your wealth, and live the lifestyle you want.
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