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How DST properties are helpful for 1031 Exchange

If the investor or the taxpayer is searching for the best 1031 option and planning to reinvest their property, you can get connected with 1031sponsors.com to get the current 1031 DST property list. DST is not a new concept, but the current tax law has made this investment an increasingly popular option that is worth looking for the 1031 exchange investors.

 DST (Delaware Statutory Trust) is the entity introduced for business purposes. DST was recognized by Delaware state law and established under the Delaware Statutory Trust Act, 1988. It acts as a private governing body under which the property is held, administered, managed, and invested. Multiple investment properties are combined to form a DST trust, and it allows the investor to purchase the shares of the trust according to his capability. The properties which are combined can be situated in different parts of the USA.  

 DST allows the investor to have a regular income even for small investments; this is the reason because of which DSTs are preferred by most individuals for real estate investments. DST leads to leaving their heirs with assets, not with the liabilities, because of which these have created a boom in the real estate investment industry.

Advantages of choosing DST’s:

1.      DST is a worthy investment to go if you are planning for income-generating investments for your heirs long after if you are gone. Therefore we can say DSTs create a valuable inheritance for your heirs.

2.      It provides the opportunities for the diversification for your investment, like if you don’t want to invest your complete amount in the single property, then you can split your investment among multiple DST properties, so it allows the investor to diversify the real estate portfolio.

3.      During the identification period of the 1031 exchange, DST property can be used as one of the three candidate properties. Suppose if you are not able to acquire the first two choices of identified candidate property to meet the deadline, DST property remains as an alternative that can be closed very quickly to meet the exchange deadline. Therefore DSTs also work as the backup program for the investor or the taxpayer.

 Now you have a better understanding of DST (Delaware Statutory Trusts), and now you have to decide whether it’s the best type of investment for you or not. The current tax laws have made it a preferred investment vehicle for 1031 exchange investors. Many owners are involved in this and are controlled by the master tenants. DSTs provide a number of possible advantages to investors. They can be a useful tool for building and preserving wealth.

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Section 1031 allows property owners to exchange their property for other like-kind property with no acknowledgment of capital gains liability or recover of depreciation at the time of the sale.

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What are “build to suit” and “rehab to suit” exchanges?

It's always good to plan everything before proceeding for the 1031 exchange. So, here in this blog, before discussing "build to suit" and "rehab to suit" exchanges, an investor or the taxpayer must have a brief knowledge of 1031 exchange. As the 1031 exchange has stringent deadlines, and there is no extension if the investor fails to complete 1031 within the specified time. However, many times, it takes more time to find a new property that's why everything must be planned before starting a 1031 exchange.

1031 exchange

1031 exchange from section 1031 of the IRC (Internal revenue code) is used for deferring the capital gain taxes. In this process, the taxpayer or the investor sells the property, hire an  expert also known as  qualified intermediary for the exchange, and reinvest the proceeds to buy a new replacement policy, and defer all the capital gain taxes. The taxpayer has a time period of 180 days from the sale of the property to complete the exchange. Qualified Intermediary is involved in the exchange process without whose presence the exchange cannot be completed because the proceeds received from the sale of the relinquished property is kept in an escrow account. If the investor uses or touches the cash, then he/she is disqualified from doing the 1031 exchange.

"Build to Suit" and "Rehab to Suit" Exchanges

The construction exchange or "build to suit" involves the procurement by the QI of empty land on which a structure will be fabricated. These outcomes in pretax dollars from the QI's appropriated funds being used (which can be enhanced by proceeds from new debt financing). Before the completion of the project or the termination of 180 days from the Income-tax Department (ITD), the part constructed and considered as realty qualifies as replacement property, provided that the "as built" structure is considered the same (in terms of completion) as what had explicitly been timely recognized under the 45-day rule.

The “rehab to suit” exchange is the same because the QI acquires reality, which needs rehabilitation with pretax dollars being held by the QI.

In either case, the relevant documentation should use "time is of the essence" language, as well as address the issue of liquidated damages for purposes of guaranteeing the fulfillment of the contractor's work before finishing the exchange in order to avoid the receipt of boot.

Documentation should also require sequential deeding, in which the QI accepts  legal  title as an interim grantee during the development and rehabilitation period, eventually deeding the title to the exchanger before the expiration of the 180-day exchange replacement period.

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This is one of the best investment strategies available to the property owners in U.S., but they need a knowledgeable and expert agent to help guide them through the whole process. 1031 exchanges are an excellent way to preserve capital and defer capital gain taxes.

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Your Customized 1031 Properties List Is Just A Step Away

You may have heard about 1031 properties list. 1031 investors use this list to compare different 1031 properties. A 1031 properties list gives a rough idea about the current market price of the properties in a particular area. Because of this, it gets easy for investors to close on a 1031 property without wandering around. However, getting hold of a 1031 properties list isn't that easy as such lists can't be found over the internet as they aren't publicly available. Instead, an investor may need to visit a real estate firm or consult a Qualified Intermediary to obtain a 1031 properties list.

When can you do a 1031 exchange?

Whether your property has reached depreciation or you want to get rid of the management responsibilities, 1031 exchange can be the solution for all your worries. A 1031 exchange (Section 1031) is a tax-deferred exchange of properties that allows investors to defer capital gains tax on exchanging an investment property for another like-kind property.  Investors choose 1031 exchange as it lets them save millions in taxes. However, to qualify for a 1031 exchange, an investor must abide by the rules established by the IRS. For example, for an exchange to qualify as a 1031 exchange, both relinquished and replacement properties need to be like-kind. In other words, you can exchange any investment property for another using a 1031 exchange.  However, you can't do a 1031 exchange for your primary residence, as personal properties don't qualify for it.

Do you need to worry about deadlines when doing a 1031 exchange?

You may have to. The IRS has very strict rules when it comes to adhering to 1031 exchange deadlines. A 1031 investor gets 180 days or six months in total for every exchange,  which begins the day the relinquished property is sold. Upon closing on the sale of the relinquished property, an investor gets 45 days for the identification of the replacement property. They must identify one or more potential replacement properties within 45 days. This time frame of 45 days is known as the Identification period. The IRS has no provision for a deadline extension and your 1031 exchange will no longer be valid in case you missed any deadline.

Why talking to a 1031 expert is important?

If it's your first 1031 exchange, you may want to speak with a 1031 expert at first. A 1031 expert can help you with everything related to your 1031 exchange. Whether it's a 1031 properties list that is bothering you  or the identification process,  a 1031 expert can help you in any situation. That's why it becomes even more important to speak to a 1031 expert before investing.

To speak with a 1031 expert, you can call 888-876-6005 or email us at info@1031sponsors.co

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DST, as a source of replacement property, is commonly used by smaller, baby boomer investors for whom real estate is not their main business. They probably own a multifamily property, a rental house or two, or retail center, or even a smaller office building.