1031 Exchange

What is a 1031 like-kind exchange?

A 1031 like-kind exchange allows an investor or business owner to sell an investment property and replace it with another property (passive or active ownership) of equal or greater value within a timeframe of 180 days from the date of close using a qualified intermediary. If all the criteria are met the investor can defer taxes on up to 100% of capital gains created from the sale of the original property. Some form of 1031 like-kind exchanges has been around since 1921.

Are there certain timelines or guidelines I must follow when conducting a 1031 like-kind exchange?

Yes, the IRS has strict timeframes and guidelines when it comes to conducting and completing 1031 like-kind exchanges. If you are contemplating a 1031 like-kind exchange we recommend to start speaking with a qualified intermediary (QI) sooner rather than later before the close. The timeframe starts on the day you close on your relinquished property. You have 45 days to identify potential replacement properties and another 135 days to acquire the replacement property. So, the total time frame is 180 days to complete the whole exchange from start to finish. Again, a good qi will guide you through the process. A QI will also need to receive and transfer the funds. You as the exchanger cannot take constructive receipt of the sale proceeds. If you do the exchange is null and void.

Delaware Statutory Trust (DST)

Delaware Statutory Trusts or DSTs were created in 1988 under the Delaware Statutory Trust Act (DSTA). A DST is a separate legal entity formed as a trust under Delaware law. Revenue Ruling 2004-86 provided further guidance from the Internal Revenue Services (IRS) and Treasury Department for use in an exchange. If properly structured, the DST will be classified as a grantor trust for federal income tax purposes and, as a result, the purchaser of a beneficial interest in the trust will acquire an undivided interest in the asset(s) held by the DST.

What is a Delaware Statutory Trust?

A Delaware Statutory Trust is a separate legal entity formed as a trust under Delaware law. If properly structured, the DST will be classified as a grantor trust for federal income tax purposes and, as a result, the purchaser of a beneficial interest in the trust will acquire an undivided interest in the asset(s) held by the DST. DSTs may qualify for 1031 exchanges.

What are some of the Benefits of a DST?

A DST may offer potential benefits that could be attractive to someone selling appreciated investment real estate. In addition to allowing the individual to defer taxes, a DST may offer the following:
 • Lower minimum investment amount
 • A lender only needs to make one loan because the DST owns 100% of the real estate (for non-tax purposes)
 • The lender does not underwrite each investor
 • Sponsor makes decisions on behalf of the investors
 • Investors cannot cause a default on the entire loan

How does it work?

A Delaware Statutory Trust is a separate legal entity formed as a trust under Delaware law. If properly structured,

 1) Exchanger sells property and proceeds are escrowed with a Qualified Intermediary (QI). 

 2) QI, through a written agreement with the investor, transfer funds for purchase of replacement property. 

 3) Exchanger receives new property or DST interest.

Why Consider a DST?

• Potential to own institutional quality real estate

• Ability to diversify by property type and location Turnkey solution: Sponsor is responsible for sourcing, due diligence, structuring and financing of debt, property and program management

• The fast and efficient closing process to meet timing requirements in the certainty of closing on the acquisition of replacement property

• Elimination of property management responsibilities

• Potential for monthly income

• Long-term, non-recourse financing in place

• Potential for Competitive income yields