Alternative Investments including 1031 Exchanges with Delaware Statutory Trusts

 

Defer Capital Gains Tax with a 1031 Exchange:

Section 1031 of the Internal Revenue Code allows an investor to defer the payment of capital gains taxes that may arise from the sale of a business or investment property. By using the proceeds of the sale of such property to purchase “like-kind” real estate, taxes may be deferred, as long as the investor satisfies certain conditions.

Delaware Statutory Trusts (DSTs) are the partial ownership structure of choice for investors who no longer want to play an active role in the management of their real estate investments. 

DSTs permit fractional ownership where multiple investors can share ownership in a single property or a portfolio of properties. Interests in a DST qualify as replacement property as part of an investor’s 1031 exchange transaction. DSTs take decision-making out of the hands of investors and place it into the hands of an experienced sponsor-affiliated trustee.

Potential DST 1031 Exchange Benefits:

• Defer Taxes – by completing a 1031 exchange, potential taxes on the sale of the property may be deferred (capital gains and depreciation recapture)
• Preserve Capital – a completed 1031 exchange may provide the opportunity to reinvest all of the sale proceeds, rather than losing a portion for tax liability
• Generate Cash Flow – depending on the type of replacement property, the potential for regular cash flow from the DST investment
• No Management Responsibilities – the DST manages the investment on behalf of investors
• Access to Institutional Quality Real Estate – fractional ownership allows investors to acquire ownership interests in larger properties than they could on their own
• Limited Personal Liability – any loans associated with real estate owned in a DST are nonrecourse to the investors
• Diversification – investors can divide their 1031 exchange across multiple DSTs, with potential diversification geographically and across multiple asset classes (multifamily, industrial, etc.)
• Ongoing Exchange Capability – the DST structure allows investors to continue to exchange in the future, often until the investor’s death when their heirs receive a step-up in cost basis and the deferred capital gains are eliminated

 

1031 Exchange Timeline 

Three Basic Steps for Investors with a Property to Exchange

1. Exhanger sells property, known as a reliquished property, and proceeds are escrowed with a Qualified Intermediary (QI).
2. Qualified Intermediary, through a written agreement with the investor, transfers funds for purchase of replacement property.
3. Exchanger receives beneficial interest in a DST.

The Value of Partnering with Lurie Wealth Advisors

Selling an investment property and completing a 1031 exchange can be a complicated transaction.  Our goal is to simplify the process and help you understand your choices and how they may impact your unique situation and financial goals.

Working with our Broker/Dealer, DAI Securities, we perform stringent due diligence and screening on several DST sponsors.  We work with a network that includes several of the most experienced DST sponsors around the country. Our team can help you choose the appropriate DSTs based on your unique needs and goals.  We can coordinate with the qualified intermediary, title company, and your CPA to make the exchange process as straightforward and efficient as possible.

 

Alternative Investments

For our high net worth clients, the expanding array of vehicles for non-traditional, alternative investing offers attractive opportunities for diversification. Lurie Wealth Advisors is diligent about helping clients build portfolios of appropriate assets and strategies that are right for them.

Our Broker/Dealer’s Chief Due Diligence Officer is constantly reviewing and analyzing products that may be appropriate for our clients and their individual needs and circumstances.

 

Let's start a conversation

If you’re considering selling a property and want to better understand the 1031 exchange process and investment options, we can help.

Michele L. Martin, President

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Nate J. Ahlberg, Senior Client Advisor

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