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DSTs: An Alternative 1031 Replacement Property Option
Owners of appreciated real estate face tough decisions: (1) hold onto a property that may not be working for them anymore so they don't have to pay the high tax liabilities associated with selling; (2) sell and pay the capital gains, 25% depreciation recapture and possibly the 3.8% Net Investment Income Tax; or (3) complete a 1031 exchange, defer the gain and reinvest all proceeds into more desirable replacement property. For those investors exchanging, they can buy traditional fee interest in property or an investment vehicle known as a Delaware Statutory Trust (DST). Regardless of the type of replacement property you acquire, all of the 1031 exchange rules and timelines remain the same. The DST is simply a different replacement property option.
A DST is a structure permitted under Revenue Procedure 2004-86 and is designed to allow investors to acquire a fractional or beneficial interest in commercial real estate, usually as replacement property in a 1031 exchange. The DST is a grantor Delaware trust that allows individual investors to acquire a beneficial interest. The DST will hold, manage and operate the properties for a profit for the benefit of the DST's beneficial interests. Each investor will receive their share of the profits, depreciation and gain or loss to report on their individual tax return.
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Webinar: DSTs: An Alternative Replacement Property for 1031 Exchanges
Register Today!
Check out the new webinar we have added to our monthly
Wealth Building Webinar Series
! Learn more about 1031 exchanges and Delaware Statutory Trusts (DSTs). We will discuss how using DSTs can provide the passive replacement property solution that just might motivate you to put that long held property on the market while still deferring the capital gains. Click on the link below to register.
Thursday, June 11, 2020 12 pm Eastern/9 am Pacific
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Seller Financing in a 1031 Exchange
Sellers are sometimes asked to provide financing to the buyer of their property as part of the sale negotiations. Usually structured with payments spread out over a number of years, sellers can report the transaction as an installment sale under Section 453 of the tax code. The installment sale method would allow the seller to defer the gain over the life of the note. Taxes are paid based on the payments received each year and part of each payment is the return of your basis, part is your capital gain which will be taxed according to capital gains tax rates and the interest paid is treated as ordinary income.
When completing a 1031 exchange, providing seller financing to the buyer of the relinquished property creates a problem because receiving anything other than like-kind replacement property is taxable. With planning, there are several ways to make the seller financing work while still deferring all gain in your exchange. In all cases, the note must be between the buyer of the relinquished property and the Qualified Intermediary (QI). All payments on the note must be made payable to the QI and be deposited into the exchange account for the benefit of the Exchanger.
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 Controversy Regarding 1031 Extensions
Extensions Outside Usual Rev. Proc. 2018-58 Relief
Those taxpayers currently engaged in a delayed or reverse 1031 exchange and struggling to complete their transaction due to the Coronavirus (COVID-19) crisis received long awaited relief from the 45-Day Identification and 180-Day Exchange Period deadlines in Notice 2020-23 released on April 9th. The notice provides that any person performing a time-sensitive action listed in either § 301.7508A-1(c)(1)(iv) of the Procedure and Administrative Regulations or Revenue Procedure 2018-58, 2018-50 IRB 990 (December 10, 2018), which is due to be performed on or after April 1, 2020, and before July 15, 2020 (Specified Time-Sensitive Action), is an Affected Taxpayer. For purposes of this notice, the term Specified Time-Sensitive Action also includes an investment at the election of a taxpayer due to be made during the 180-day period described in section 1400Z-2(a)(1)(A) of the Code. This includes the 45-Day Identification and 180-Day Exchange Period deadlines in a 1031 delayed or reverse exchange
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Wealth Building 
Webinars
Register Today!
Join us for our complimentary Wealth Building Webinar Series designed to help you build and preserve wealth.
Thursday, June 4, 2020 12 pm Eastern/9 am Pacific
Tuesday, June 9, 2020 12 pm Eastern/9 am Pacific
Thursday, June 11, 2020 12 pm Eastern/9 am Pacific
Tuesday, June 16, 2020 12 pm Eastern/9 am Pacific
Thursday, June 18, 2020 12 pm Eastern/9 am Pacific
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About 1031 CORP.
Serving as a nationwide qualified intermediary for 1031 tax-deferred exchanges since 1991, 1031 CORP. strives to provide a superior exchange experience for our customers and their advisors. We provide our customers with enhanced security of funds, knowledgeable exchange professionals and a commitment to keep the exchange process simple for our customers and their advisors. Our Exchange Team, which includes Certified Exchange Specialists®, has the experience and expertise to facilitate even the most complex exchange transactions, including reverse and improvement exchanges.
Additional information can be found at
www.1031
CORP.com
.
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Margo McDonnell, CRE, CES®
Certified Exchange Specialist®
President and CEO
1.800.828.1031 ext. 212
Mobile: 610.680.6896
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Marissa LoCascio, CES
®
Certified Exchange Specialist®
Senior Vice President &
Director of Operations
1.800.828.1031 ext. 210
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