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CapitalPress.com
Friday, September 9, 2022
THE 1031 EXCHANGE SOLUTION
by L. Jake Carpenter, VP Investor Rela�ons
Have you wondered if a 1031 Exchange
would work for you? Are you looking for a
replacement property for your 1031 Ex-
change? I will discuss the ins and outs of a
1031 Exchange as well as a possible solu�on.
Please be advised that this ar�cle is general in
nature and is not in any way intended to give
tax and/or legal advice. You should always
work with your own tax and legal professionals
when evalua�ng if a financial strategy is appro-
priate for your situa�on.
A 1031 Exchange originates from the IRS tax
code, Sec�on 1031. It allows a Seller of an in-
come-producing property to work with a third-
party facilitator. The facilitator takes receipt
of the sales proceeds, while the Seller is al-
lowed 45 days to iden�fy one or mul�ple, “like
-kind” replacement proper�es of equal or
greater value, into which the sales proceeds
are deployed from the facilitator. The process
to acquire the replacement property must be
concluded and closed within 180 days. Capital
gains tax deferral is achieved because the sell-
er doesn’t take receipt of the sales proceeds.
While the capital gains tax deferral is an
a�rac�ve op�on, the �me constraints give
some people pause. Once you execute a 1031
Exchange, you have 45 days from the sale of
your property to iden�fy a replacement prop-
erty, complete your due diligence, and commit
your sales proceeds to it. The closing must
occur within 180 days. Today, it’s a li�le hard-
er to make an exchange in 180 days because
the inventory of eligible replacement prop
er�es is low. The fact is, some�mes 45 days is
just not enough �me to make sure you found
all the skeletons in the closet before com-
mi�ng. And as some can a�est to, making a
hasty decision and failing to do the proper due
diligence on a property can be very costly in
the long run.
There is an op�on that should be consid-
ered if you’re looking for a properly ve�ed re-
placement property. I am referring to a Dela-
ware Statutory Trust (DST). DST’s have been
around for over 30 years; since the passing of
the Delaware Statutory Trust Act in 1988. A
DST is an en�ty that holds commercial income-
producing property, which qualifies as replace-
ment property in a 1031 Exchange. A DST may
have several investors vested in the en�ty,
each with frac�onal ownership interest. The
owners in the DST par�cipate in their por�on
of the cash flow, tax benefits, and capital ap-
precia�on, if any, of the en�re holdings. The
property holdings in the DST are professionally
managed by a third party. What does this
mean for you as the investor? It means no
trash, toilets, tenants, or liabili�es you need to
worry about. The 1031 Exchange investor may
defer their capital gains tax liability, receive
income from their interest in the DST, and par-
�cipate in the growth over �me through the
apprecia�on of the proper�es. When the �me
comes to sell, the investor can do the same
thing all over again and use a 1031 Exchange
to iden�fy another Delaware Statutory Trust
to move their appreciated sales proceeds into
and con�nue to grow their investment with
the capital gains tax deferred.
If you think you like this idea, what’s next?
First, partner with professionals that can help
you. Work with a company like Equilus Capital
Partners, which sponsors Delaware Statutory
Trusts. As the Trustor, Equilus Capital Partners
also manages the holdings in the trust. Our
DST’s hold proper�es that have been thor-
oughly ve�ed and acquired for the benefit of
the investors.
I would like to invite you to contact me if
you’d like to find out more about 1031 Ex-
changes and Delaware Statutory Trusts. Please
contact me at (509)665-8349 to set up your
complimentary consulta�on today.