Machen Wealth Management
(916) 526-2680

1031 Exchanges & REITs

If you own investment property and are thinking about selling it and buying another property, you should know about the 1031 tax-deferred exchange. A 1031 exchange (with its name from Section 1031 of the U.S. Internal Revenue Code) allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.

It’s important to note that investors cannot receive proceeds from the sale of a property while a replacement property is being identified and purchased. Instead, funds are held in escrow by a 1031 exchange intermediary—sometimes referred to as an accommodator—until the replacement property is purchased.

Using a 1031 tax-deferred exchange requires advance planning. The three primary 1031 exchange rules to follow are:

  1. Replacement property should be of equal or greater value to the one being sold
  2. Replacement property must be identified within 45 days
  3. Replacement property must be purchased within 180 days

What is a DST?

A Delaware Statutory Trust (DST) is a legal entity created under Delaware law as a trust that holds title to 100% of the interest in real property. Investors acquire a beneficial interest in the trust, with limited personal liability for the underlying assets. A property structured DST property will qualify as like-kind exchange property for a 1031 exchange according to the IRS revenue ruling 2004-86.

The DST 1031 Exchange is a solution for accredited investors desiring to insulate themselves from market volatility by exchanging a single property for a diversified portfolio of passive real estate. DSTs allow investors to manage concentration risk by purchasing pieces of quality real estate all over the US. The main advantage of a DST 1031 property is that you can line up a replacement property for your 1031 exchange at the last minute without all of the stress of missing the deadline. The sponsor of DST is doing all of the work of finding the property, getting it under contract, getting a loan on the property, closing, and managing the day-to-day operations.

Contact Us
If you’re feeling apprehensive about your financial future and need someone to act as a sounding board to bounce ideas off of, contact us to schedule a FIT meeting. (916) 526-2680