Is your property generating the desired revenue, or has it reached depreciation? Many investors end up selling their properties in such situations. In the process, they are liable to pay hefty capital gains tax on the transaction. However, you can do a 1031 exchange on the subject property to save your income from taxes as it gives you an opportunity to defer up to 100% capital gains tax. 1031 exchange properties have several replacement options, out of which DSTs are the most popular ones.
A DST (Delaware Statutory Trust) is a private that can be formed by filing a Certificate of Trust with the Delaware Division of Corporations. DSTs own, manage, regulate, and sell income-producing properties. DST shares can substitute 1031 exchange replacement properties and help you defer capital gains tax. DSTs have high-grade investment properties in their portfolio, and you can invest in multiple DST assets at once. You can also use a 1031 exchange to trade an old or non-performing asset for DST properties.
Easy to close, flexible, high returns, and less expensive are a few factors that make DSTs a perfect 1031 replacement option.
DST investments are real estate investments. When you invest in a DST, you invest in one of the trust’s properties and not in the trust itself. A DST investment is a shared ownership structure, which means by investing in DSTs, you can acquire properties you might not be able to purchase individually. DSTs are known for their large structure. Many DSTs have up to a hundred investors or even more, which makes a DST investment economical. A DST investment can help you own properties you can only dream of at present.
DST properties are backed by pre-arranged property or asset managers, which means you don’t need to bear the property management burden. You are also allowed to divide your 1031 proceeds into smaller amounts and invest them in multiple 1031 Exchange DST properties. Wondering if you ever thought of diversifying your investment portfolio by adding different grades of properties?
Why are 1031 Exchange DST properties best valued?
With monthly income, inexpensive investment, no landlord responsibility, and higher returns, a DST investment gives you a stress-free experience. We now know a 1031 exchange lets investors defer capital gains tax on reinvesting the sale proceeds from the previous property into another like-kind property. A DST investment qualifies for a 1031 exchange because you invest in real estate and not in an entity.
The IRS gives you a time limit of 180 days to complete your 1031 exchange. You need to identify the replacement property and acquire it within these 180 days. A direct 1031 exchange will just let you defer capital gains tax. However, a DST 1031 exchange investment can help you get hold of a management free institutional-grade property and still defer up to 100% capital gains tax. Therefore, if you’ll mix 1031 exchange with a DST investment, you can enjoy numerous benefits and tax advantages.
Close your 1031 exchange with a DST investment easily –
- You know the property you want to sell first. So, list it for sale. Find a buyer and get your money.
- Enter a 1031 exchange agreement with a Qualified Intermediary. A Qualified Intermediary is an individual who facilitates 1031 exchanges and gets your job done.
- Do not use the sale proceeds. Transfer the money into an escrow account managed by your QI.
- Compare several DSTs and invest in the one that’s offering maximum return.
- Acquire the DST property share as your 1031 exchange replacement property within 180 days (starts the day the old property is sold).
- Submit Form 8824 to the IRS and other required documents on the tax filing day
A DST 1031 investment is as simple as this. However, just like any other investment, DSTs also have a few drawbacks that you may not want to overlook.
Being a DST investor, you may not get the following rights –
No property title – DSTs don’t give you the property title. As a single DST has many investors, it’s impossible to transfer the property title in one or all investors’ names.
No voting rights – Any issue related to a DST is resolved by the trustees or DST sponsors. DST investors don’t have voting rights.
No single-member LLCs – If you are a DST member or investor, you cannot form a single-member LLC.
A DST investment has these three major drawbacks. However, if you compare with its benefits, these drawbacks don’t look too significant. Still, you must consult an experienced advisor or expert before investing in DSTs. An advisor’s assistance can help you avoid small mistakes that aren’t visible to the naked eyes. Let us know what kind of property you are looking for, and we will connect you to a team of qualified DST advisors and 1031 experts. We also make sure that one of our advisors stay with you throughout the transaction.