1031 Exchange Resources
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1031 Exchange
Fundamentals & Rules
- 1031 Exchange Basics
- How 1031 Exchanges Work
- Benefits vs. Risks
- 1031 Exchange Rules
- 1031 Exchange Options
Investing in
Delaware Statutory Trusts
- What is a Delaware Statutory Trust
- How 1031 DSTs Work
- DST Benefits vs. Risks
- How Due Diligence Works
- DST Sponsors & Offerings
- Speak with a licensed 1031 Exchange Advisor
- Discuss your potential tax liability
- Understand benefits vs. risks
- Discuss 1031 Exchange options
Step 1 - Investor Sells Fee Simple Property with 1031 Exchange
Sub-institutional investment property owners can defer the taxes due on a sale (including capital gains, depreciation recapture, and state income taxes) by completing a 1031 Exchange and reinvesting their sales proceeds into DSTs intended to be converted into a REIT via 721 UpREIT.
Step 2 - Investor Selects 1031 DST Property Intended for REIT Conversion
As institutional-grade properties, DSTs are attractive to REITs, making UpREITs possible at this stage. Some DSTs are designed with the specific intention of being absorbed by pre-determined REITs.
Step 3 - DST Property Absorbed by REIT
Once a DST is absorbed by a REIT, fractional interests in the DST are exchanged for Operating Partnership (OP) units in the REIT. OP units participate in the REIT’s income and asset appreciation in the same way REIT shares do. When an owner is ready to sell their ownership, the OP units can be converted into REIT shares.
Step 4 - Investor Converts OP Units to REIT Shares
OP units are eventually converted into REIT shares, providing investors with liquidity. The conversion to REIT shares itself is a taxable event, thus owners typically do not convert their OP units to REIT shares until they plan to either liquidate their shares or have received a step-up in basis whereby the deferred tax liability has been eliminated.
1031 Exchange & DST Articles
1031 Exchange FAQs
Here are a handful of frequently asked questions related to 1031 exchanges. See our 1031 Exchange FAQ to learn more.
As defined by the SEC, an accredited investor is an individual who has either a $1 million net worth excluding their primary residence or $200,000 of income individually or $300,000 joint income for each of the last two years with a reasonable expectation for the same in the current year.
DSTs are held for anywhere between 3 – 10 years. Should investors want to exchange out of the property, conservatively, the DST property should be held for a minimum of two years. Typically, the DST loan’s prepayment penalties become palatable after year 3. DSTs with debt in place are not allowed to refinance, as such with 10-year fixed rate commercial debt, 10 years becomes the maximum hold period.
Should you be interested in selling your position in a DST, there is a mechanism to do so. However, it cannot be guaranteed that you will be able to sell the DST investment, nor receive your entire investment back unless the market conditions support it.
1031 Exchange Glossary
Here are a handful of key terms related to 1031 exchanges. See our 1031 Exchange Explained glossary to learn more.
