What Is a Planned Unit Development in Real Estate?

Selling real estate inside a planned unit development (PUD) can trigger tax consequences, particularly capital gains taxes. If your property increased in value or made improvements while living there, you must pay capital gains tax on the profits. However, there are potential strategies to mitigate this tax burden. One of the most beneficial options is the tax tool you didn’t know you had — the deferred sales trust (DST).

Talk to the attorneys at 453 Deferred Sales Trust Powered by Pennington Law. Our firm was recognized as the Best Deferred Sales Trust Law Firm in the U.S. of 2024. We work with property owners, investors, and asset holders who want to maximize the value of their highly appreciated assets without losing a sizeable chunk to taxes. Our experienced deferred sales trust attorneys can discuss how DSTs can help you accomplish these goals over other alternatives.

We are a national practice serving clients throughout the U.S. Contact our legal team today for an initial consultation.

What Types of Properties Are Typically Found in a Planned Unit Development?

A planned unit development (PUD) often includes a mix of residential, commercial, and recreational spaces. In many cases, you’ll see single-family homes, townhomes, and condominiums grouped in one area. Some PUDs also include apartments, so they’re accessible to a range of buyers and renters. You might also find shops, offices, restaurants, or small businesses in the same development. Parks, walking trails, clubhouses, and shared green spaces often appear as well.

Developers build these communities to offer convenience and a neighborhood feel. Because PUDs blend different uses, they appeal to people who want to live near services or work close to home. This type of variety separates PUDs from traditional subdivisions or housing-only developments.

Planned Unit Developments and Capital Gains Tax Exposure

When you sell a highly appreciated asset in a PUD, you may face substantial capital gains taxes. These taxes can significantly eat into your proceeds. Depending on your situation and where you live, you could face:

• Federal taxes – Could be 0 percent, 15 percent, or 20 percent, depending on your taxable income
• State taxes 
• Net investment income tax (NIIT) – An extra 3.8 percent tax applies to people with an adjusted gross income of over $200,000 ($250,000 for married couples filing jointly)

Depending on your financial situation and how long you held the asset, the total tax burden on capital gains can be as high as 37 percent. Given these figures, property owners often look for solutions to avoid paying such high taxes.

How a Deferred Sales Trust Can Help

A deferred sales trust allows an asset holder, in a PUD, usually a property owner or investor, to facilitate the sale of the property to a third party while managing or deferring the capital gains tax triggered from the sale. The trust sells the property and pays the proceeds to the property owner over time. The deferred sales trust agreement determines the amount and frequency of these installments.

A property owner can defer capital gains tax liability indefinitely by having the trust reinvest the proceeds and only distribute the income that comes from the investment. Since the owner never gets money from the original sale, they do not incur capital gains tax liability.

The advantages of a deferred sales trust include:

• Tax deferral – You can postpone capital gains taxes as your profits grow.
• More flexibility than 1031 exchanges – A 1031 exchange is a tool some property owners use to defer taxes through a like-kind exchange, but it only applies to investment properties and comes with tight deadlines and restrictions.
• Diversification – Proceeds can be reinvested in stocks, bonds, mutual funds, and more, not just like-kind exchanges.
• Estate planning benefits – Property owners can integrate a DST into their estate plans, potentially reducing estate taxes and simplifying asset distribution.
• Retirement planning – You can structure your DST to provide a steady income stream to support you in retirement.

What Our Deferred Sales Trusts Attorneys Can Do

The deferred sales trust lawyers at 453 Deferred Sales Trust Powered by Pennington Law can help you by:

• Reviewing your financial circumstances to determine the suitability of a DST for your PUD sale
• Explaining various alternatives to the DST, along with the risks and benefits
• Structuring your DST to meet legal requirements to reap tax benefits and comply with state and IRS guidelines
• Incorporating your DST seamlessly into an overall estate planning strategy that meets your objectives

Our firm includes highly experienced attorneys, financial planners, and tax professionals who understand the complexities of these sectors and make custom recommendations for your situation. When you choose us, you get an IRS-compliant firm that manages all your needs rather than outsourcing various aspects to other professionals. This approach protects your investments from mismanagement by keeping everything under one roof.

Along with being named the Best Deferred Sales Trust Law Firm in the U.S. of 2024, our reputation for excellence is reflected in our recognition by several respected peer-reviewed organizations, including our consistent inclusion in the annual Best Attorneys in America, Lawyers of Distinction, and Super Lawyers lists.

Still Have Questions About Planned Unit Developments and DSTs? Seek Guidance from a 453 Trust Attorney

If you’re preparing to sell a property within a planned unit development, it’s crucial to consider the tax consequences and potential tax tools to maximize your profits. The team at 453 Trust Powered by Pennington Law can explain your options and set you on a solid financial track. Whether you already have a 453 trust or want to hear the pros and cons of setting one up, we can help. Contact us today for an initial case evaluation with a knowledgeable deferred sales trust lawyer.