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1031 & DST Information

Traditional 1031 Tax-Deferred Exchange

Traditional 1031 Tax-Deferred Exchange

Section 1031, often called 1031 Exchange, refers to the Internal Revenue code section that provides an alternative strategy for deferring the capital gains tax that may arise from your property sale. By exchanging the property for like-kind real estate, property owners may defer their tax and use all of the proceeds for the purchase of replacement property. Like-kind real estate includes income producing, investment or business properties, but not the property owner’s primary residence. Section 1031 does not apply to the exchange of stocks, bonds and indirect investments in real estate.

Delaware Statutory Trust  & 1031 Exchange

Delaware Statutory Trust  & 1031 Exchange

A Delaware Statutory Trust (DST) is created under Delaware law and may be used in a Section 1031 tax-deferred exchange.  Investors may purchase a beneficial interest in the Delaware Statutory Trust which holds the replacement property directly or through a 1031 Exchange.  However, the DST’s structure must comply in accordance with Internal Revenue Service’s Revenue Ruling 2004-86, and is subject to specified conditions, such that a beneficial interest in the trust is treated as an undivided fractional interest in real estate for federal income tax purposes.

Basic Guidelines to Remember for all 1031 Exchanges

■ Seller should have the contract specify that the sale may be structured as a 1031 exchange.

■ Seller cannot receive or control the net sale proceeds – the proceeds must be deposited in a qualified escrow account with the use of a Qualified Intermediary or Accommodator.

■ Replacement property must be like-kind real estate to the relinquished property.

■ The replacement property must be identified within 45 days from the sale of the original property.

■ The replacement property must be acquired within 180 days from the sale of the original property.

■ Generally, the cash invested in the replacement property must be equal to or greater than the cash received from the sale of the relinquished property.

■ The debt placed or assumed on the replacement property must be equal to or greater than the debt relieved with regard to the relinquished property.

This is a brief and general description of certain 1031 guidelines and is not meant to include all relevant provisions of a 1031 exchange. Prospective investors should consult with their own financial advisor, attorney and tax advisors regarding a 1031 exchange before selling a property.

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