- WHAT IS A 1031 EXCHANGE?
- WHAT IS A DST?
- WHAT ARE THE POTENTIAL DST BENEFITS?
- STEPS TOWARD COMPLETING AN EXCHANGE
- I’M INTERESTED, LET’S GET STARTED
WHAT IS A 1031 LIKE-KIND EXCHANGE?
A 1031 Like-Kind Exchange allows investors/business owners to sell investment property and exchange it with another property (passive or active ownership) of equal or greater value within a strict time frame (45 days to Identify/180 days in total to close). You must engage a qualified intermediary before the sale to set up the exchange properly. If all the criteria are met the investor can defer 100% of the taxes created from the sale of the original property. The 1031 exchange has been around in some form since 1921.
WHAT IS A DELAWARE STATUTORY TRUST?
A Delaware Statutory Trust (DST) is an ownership structure that has been around since the 1980s. In 2004, the IRS approved DSTs to be use as an eligible replacement property option for investors (passive ownership). DSTs allow eligible (must be Accredited Investors) investors to become fractional owners of professionally managed, institutional real estate alongside other accredited investors. If you are tired of being a Boston landlord, this could potentially be a way to defer the taxes with a 1031 exchange and retire from being a landlord.
LIKE-KIND PROPERTY (Passive & Active)
WHAT ARE THE POTENTIAL BENEFITS?
Passive Investing
- If you are tired of being a landlord but don’t want to pay the taxes, a 1031 exchange using passive, fractional ownership in DSTs might help achieve this goal. The management company handles all aspects of the property management of the DSTs.
Tax Benefits
- With a 1031 exchange, landlords can sell their investment properties, defer all taxes on the sale of the properties (if they hit all the criteria) and potentially avoid leaving a tax burden to their heirs. There also could be some depreciation reset as well, that could potentially help shelter the income (discuss with your accountant).
Income Generation
- DSTs generate potential income in most cases on a monthly basis. The income could have some tax sheltering if a new depreciation schedule was created. This income can be sent via check or direct deposited into a bank/brokerage account of your choice.
Value Appreciation
- There is always potential for appreciation or loss, and your fractional ownership amount would participate in that.
Diversification
- DSTs have low minimums. So instead of just buying a duplex down the street, you can invest in a multifamily in TX, student housing in NC and an industrial in AZ with the same amount. Diversification geographically and by asset class.
STEPS TOWARD COMPLETING AN EXCHANGE
The path toward a successful 1031 exchange includes pre-planning:
- Find and engage with an experienced Qualified Intermediary (QI) to handle the exchange. We can give a referral if need be.
- Discuss early on with 1031 familiar professionals to help with your sale such as associates from Jacob Realty. Jacob Realty can also help you find active replacement properties and Asset Strategy can help find passive replacement properties for your exchange.
- Ask the QI how they protect and hold your exchange proceeds during the exchange process.
- The DST marketplace is vast with many different options. Consult with groups that have a thorough- due diligence and vetting process versus just googling.
- Demand strong and frequent communication from your QI. The timelines are tight, so you need someone that will help guide you through the process.
- Again, there are only so many days the IRS allows in a 1031 exchange. You want to start searching for Replacement Property as early as your schedule allows to avoid rushes and last minute decisions.
TIMELINE FOR 1031 EXCHANGE
I’M INTERESTED, LET’S GET STARTED
SMART STRATEGIES
Capital Gain Strategies For Highly Appreciated Investment Real Estate
Asset Strategy is an independent wealth management firm with over three decades of experience. Our ethos is centered on providing our clients with thought leadership, education, and advice across the spectrum of investment and financial opportunities. That’s why we’re excited to help our clients meet their investment and planning objectives when considering the sale of investment properties through a 1031 exchange. We’ll guide you through the process and help you select and acquire suitable 1031 exchange eligible investments to meet your real estate portfolio goals and objectives. Download our complimentary guide today to learn more!
Sean
Whalen
Sean Whalen, CFP®, MSF is the Director of Private Wealth and Senior Consultant at Asset Strategy. He has 20+ years of experience in investment management, risk management, budgeting, financial planning, and capital gain strategies. He formerly worked at Morgan Stanley and Santander Investment Services. He holds a Master of Science in Finance degree from Brandeis University. Contact us to learn more about our team.
Bill O’Neill
William “Bill” O’Neill, AIF®️ is a graduate of Merrimack College with a BS in Finance. He is an Accredited Investment Fiduciary from the Center for Fiduciary Studies. Bill’s role with Asset Strategy is Communications Manager, which draws from his 25 years of experience as a serial entrepreneur. He was previously a partner/founder in an executive search firm, owned a purpose-built construction company, and helped develop a corporate marketing and communications firm. Bill has also been an investment property investor for over 20 years.
About Asset Strategy
We are an independent consulting & investment advisory firm that was created to service the unique needs of our clients. For over 30 years, the Asset Strategy network of companies has been providing impartial investment and risk management services to help ensure financial wellness to a wide array of investors. Asset Strategy assists clients with managing the risk and responsibility of investment programs and helping individuals achieve successful financial outcomes. As fiduciaries our relationships are built on the bedrock of trust and confidence that are backed up with a legal responsibility to always put our client’s interests above all else.
Our mission is to help our clients achieve the desired financial and lifestyle goals they have been diligently working towards. As your trusted financial partner, we remain steadfast in our commitment to you and utilize all of our vast resources and experience to help you achieve your goals.
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DST 1031 properties are only available to accredited investors (typically defined as having a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years; or have an active Series 7, Series 82, or Series 65. Individuals holding a Series 66 do not fall under this definition) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney.
IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax concepts, therefore you should consult your legal or tax professional regarding the specifics of your particular situation.
There are material risks associated with investing in real estate securities including illiquidity, general market conditions, interest rate risks, financing risks, potential adverse tax consequences, general economic risks, development risks, and potential loss of the entire investment principal.
Because investor situations and objectives vary this information is not intended to indicate suitability for any individual investor.
Advisory services offered through Asset Strategy Advisors, LLC (ASA). Securities offered through representatives licensed with either Concorde Investment Services, LLC (CIS), member FINRA/SIPC, or RCX Capital Group, LLC (RCX), member FINRA. Insurance offered through Asset Strategy Financial Group, Inc. (ASFG). ASFG and ASA are independent of CIS and RCX. To access Concorde’s Form Customer Relationship Summary (CRS), please click here. To access RCX’s Form CRS, please click here.
Asset Strategy does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.
There is no guarantee investment plans will meet its objectives.
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