Real Estate Investor Primer

This overview of 1031/1033 Exchanges, DSTs, and Opportunity Zones provides an introduction, requirements, advantages, restrictions and limitations, along with a case study.  Here is an excerpt:

1031/1033 Exchanges

A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which 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. Like kind refers to the character of the asset, not the quality.

You may exchange one investment property for another investment property (or properties). The properties can be land, multi-family units, office buildings, single family homes.  They can also be different so long as they are all held for investment purposes.

Or perhaps you own investment property and you are being forced to relinquish your property through eminent domain or loss from natural disaster, even if insurance proceeds are received. You may want to consider a 1033 exchange.

Similar to a 1031 exchange, the U.S. Internal Revenue Code provides the ability to avoid paying capital gains taxes when your property is taken.  Of course, this assumes you meet certain rules about reinvesting any gains.  This is done under Section 1033.

There are similarities and distinct differences between 1031s and 1033s.

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DST (Delaware Statutory Trust)

So you own investment properties and have had some form of active management.  You like investing in real estate and the diversification and tax benefits real estate adds to your overall portfolio. But what if you don’t want to continue this active management? You don’t want those calls in the middle of the night, or you don’t want to oversee the management company. There is a way to use IRC 1031 and IRC 1033 to defer the tax on the gains of the relinquished property(s). This is where DST’s come into play.

  • A Delaware Statutory Trust (DST) is a business trust that can be used for real estate ownership of higher-quality, professionally managed commercial properties; provides a passive, turn-key solution for transacting a 1031 Exchange.
  • Investors in a DST are not direct owners of the real estate, but instead own an individual interest in the assets held by the Trust.
  • The Trust holds title to the property for the benefit of many investors.
  • DSTs are recognized by the IRS (Rule 2004-86) as qualified replacement property for real property.
  • Property types may include Triple-Net, multifamily, industrial, office, self storage and many others.

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Real Estate Investment Primer