I'd like to sell my property, but I have a giant tax bill.......

1031 Exchange - a 1031 exchange is a section of the internal revenue code that allows you to exchange real property held for rental or investment purposes, or that was used in your trade or business, for other real property that will also be held for rental or investment purposes.

Some important details include, but are not limited, to the following:

  • The value of the new property must be the same or greater 
  • If you have debt on your property, the new property must have equivalent debt
  • Timing - the exchange period must be completed 180 days after you sell your property.  In addition, a replacement property must be identified in 45 days.
  • Property cannot be:  acquired to fix up, condo conversion or acquired to develop

1031 Exchange is great....but there are some problems

1031 Exchanges have challenges.  Consider the following:

  • No ability to get cash out of an exchange without incurring tax
  • Trouble locating replacement property in time
  • Replacement property less than original proceeds – need to place excess proceeds (Boot)
  • Inability to close in time
  • Financing issues

A Different Solution

Delaware Statutory Trust (DST).  Trust created as a pass-through entity that can hold passive Real Estate.  All income, net of expenses, is sent to the investor.  All debt is nonrecourse.  

Benefits  

  • Tax deferred, qualifies as 1031 eligible 
  • Complete hands off (passive) investment.  Avoid the 3 "T's" (Toilets, Tenants and Trash)
  • Estate planning tool - pass DST on to your heirs, tax deferred 

Who is a Fit? 

  • Investors looking to get our of managing real estate
  • Real estate owner seeking retirement
  • Backup options for traditional 1031 exchanges
  • Investors looking to diversify geographically or into other property types