From: Christina Nielson

Delaware Statutory Trusts (DSTs) Can Be A Good Solution To Common 1031 Exchange Challenges

  1. Delaware Statutory Trusts (DSTs) Likely Defer 100% Capital Gains Taxes & Avoid Taxable Gains on Boot
    1031 exchange Into DSTs allows deferral of higher taxes and the 2013 Obamacare Medicare surcharge of 3.8%. Total taxes on investment real estate sales can exceed 40 to 55% making 1031 exchange an option to defer capital gains taxes. The exact dollar amount of the replacement property is a common challenge in 1031 transactions. An investor may sell a relinquished property for $1,000,000 and then find a replacement property for $825,000. The difference in the price of the relinquished property and the price of the replacement property results in a taxable amount on the remaining $175,000. Purchase a DST for $175,000 and defer all capital gains taxes.
  1. DSTs May Solve for Lack of Inventory In The Market
    There are limited listings in today’s real estate market making it difficult to find suitable 1031 exchange replacement properties. DSTs are prearranged replacement properties that can close in as little as three business days.
  1. Access Institutional Quality Real Estate
    DST investors can access institutional quality 300-unit apartment complexes, long term leases with high quality credit tenants and other quality real estate normally not available to individual investors. Institutional quality properties can exceed $40,000,000 in price – however  –  DST investors can access these properties with as little as $100,000 in equity.
  1. DSTs May Be Used as Back Up Properties For 1031 Identification
    Many investors identify replacement properties using the “3 Property Rule” meaning the investor can identify three replacement properties, regardless of purchase price, by the 45th day. Identifying just one replacement property is not ideal as that one property may not ended up closing due to a variety of reasons; inspections, due diligence or financing etc… It may be wise for an investor to identify a DST or two as back up identification items as a precautionary measure.
  1. Completely Passive Real Estate Ownership – No Property Management Hassles
    Many investors have grown tired of the Terrible T’s of property ownership: Tenants, Toilets, Trash, Termites, Teenagers. DSTs have professional property management as part of the ownership structure allowing you to replace the Terrible T’s with the Terrific T’s: Travel, Time Off, Tennis, Tee’ing Off.
  1. Ability To Close Quickly
    DSTs may be able to close escrow quickly – often in as little as three business days – allowing projected cash flow to begin sooner.
  1. DSTs Provide Easy-To-Assume Non-Recourse Financing