Requirements For 1031 Exchange
1031 exchange is an opportunity for investors to defer the tax consequences of the sale of a property. However, certain requirements need to be met by the 1031 exchange to get it valid by the IRS.
A few of the requirements are explained below:
- The same taxpayer name must appear on both the property title that sells and the bought property. One limitation to this rule is when an SMLLC sells, and the single member buys it in his or her name.
- After the initial property’s sale has been finalized, the Exchanger has 45 calendar days to present the accommodator or the closing entity a list of potential replacement properties. There are various rules that explain this process and define the number of properties that can be identified and their value limitations.
- There is a timeline of 180 days for the entire 1031 exchange, including the sale of initial property, i.e., 45 days identification period, and the remaining 135 days to complete the exchange process.
- If the Exchanger wants to defer 100% taxes by 1031 exchange, then he needs to reinvest all the sale proceeds from the sale of an initial property into the property that is equal to or less than the total sales. Anything else will be qualified as a partial exchange, and the Exchanger would have to pay tax on the difference amount. The debt and equity in the new property must be equal to or greater than the debt investment in the relinquished property.
DST Properties and 1031 Exchanges
DST (Delaware Statutory Trust); however, DST’s are not confined to the jurisdiction of Delaware. A Delaware Statutory Trust is a separate legal entity in which each investor or owner has a fraction in the DST for federal income tax purposes. Each investor is treated as he had an undivided fractional interest in the investment property. Nowadays, DST 1031 exchanges have become more popular among investors. Various benefits that come from investing in DST’s are:
- DST’s have lower investment thresholds that allow investors to diversify their portfolios more easily.
- DST’s also allow investors to experience the benefits of owning real estate without the troubles that come from actively maintaining real estate.
There are certain fees associated with the DST transaction during its occurrence. Below mentioned is the list of DST fees included in the DST 1031 exchange transactions:
- Selling Commission: Registered representatives and registered investment advisors licensed to broker DST investment sales are paid a commission for their efforts. It is common for third-party selling groups to play a part in DST exchanges since most sponsors are not licensed through their own platform.
- Acquisition fees: Also known as a “finder’s fee.” An acquisition fee belongs to the sponsor for his efforts to identify the property, sale negotiation, and finally acquire the asset in the DST.
It is great to prepare to know the risks and fees involved in a DST 1031 exchange. Each Delaware Statutory Trust program operates under different circumstances that means the risks and fees also differ; that figure out which path will best suit your objectives. If you’d like to learn more about the fees and risks involved in any specific DST, then these can be found in detail in the DST’s offering memorandum. Get in touch with us today to request an offering memorandum to know about the DST property list on our platform.
If you’ve ever owned rental real estate in the past, then you must be knowing that property management is time-consuming and stressful. Some investors find that it can be a major relief to hand over the decision-making and the management responsibilities to a professional team of experienced managers. So it is always important to do proper due diligence on the sponsor of the DST and the manager of the property.
There are some risks and fees associated with DST’s; investors have found its financial outcomes rewarding. If you are looking to make DST’s work for you, visit 1031xchange today.