1031 Exchanges and DSTs

Who likes to pay taxes?  Somewhat of a redundant question, but quite common for those who sell investment properties or businesses which have appreciated over time.  A potential option of deferring this tax comes in the form of Internal Revenue Code 1031, which a Delaware Statutory Trust (DST) can participate in.  A DST is a business trust created under Delaware law which can be used in a wide variety of business settings and have become popular pass-through entities to hold commercial real estate assets for investors.

A DST partaking in a 1031 exchange allows an investor to defer the payment of capital gains taxes that may arise from the sale of a business or investment property. By using the proceeds of the sale to purchase “like-kind” real estate, taxes may be deferred, if the investor satisfies certain conditions.  Upon the sale of a property in a DST, the investor will have the option to pay any capital gains tax or defer any capital gains tax by participating in another 1031 exchange.  PWG can discuss and explain potential replacement properties for clients who look to participate in a 1031 exchange.

This is an often-unknown option for those selling highly appreciated investment properties but should be discussed as potential tax-deferral solution.