Selling a primary home with significant appreciation can create a large tax bill, and while the IRS Section 121 exclusion allows homeowners to exclude up to $250,000 in gains ($500,000 for married couples), that may not fully protect sellers with luxury properties or homes in fast-growing markets. A Deferred Sales Trust (DST) offers an advanced tax-deferral strategy that lets you turn excess gains into long-term financial advantages. Section 121 requires only that you’ve owned and lived in your home for two of the last five years, but it applies only to primary residences—and only up to the exclusion limits. If your gain exceeds those limits, a DST lets you sell the property to a trust in exchange for a promissory note, allowing the trust to sell the home and hold the proceeds. Instead of receiving one lump-sum payment (and triggering immediate taxation), you receive scheduled payments over time, spreading out tax liability and potentially growing wealth through reinvestment. Unlike a 1031 exchange, a DST can be used for a primary residence, making it a powerful tool for owners of high-value homes. If your gains are modest, the IRS exclusion may be enough—but for larger gains, a DST can preserve wealth, create passive income, and turn a tax event into an investment opportunity.
source: https://capitalgainstaxsolutions.com/should-you-defer-capital-gains-when-selling-your-primary-home/
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