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DELAWARE STATUTORY TRUSTS (DSTs)
A 1031 Exchange requires the purchase price of the replacement property to be of equal value or greater value than the relinquished property purchase price. The net proceeds, or the amount received from the buyer after mortgage payoff from the relinquished property sale, must be reinvested in the replacement property. Further the mortgage that was paid off in the relinquished property must be replaced in the replacement property.
This is why the transaction is called an “EXCHANGE”. The properties are exchanged, but much of the other conditions remain unchanged, which is the premise behind the tax deferral.
For example, assume a $10,000,000 property was sold and the seller (you) received $8,000,000 of net proceeds after the $2,000,000 mortgage was paid off at closing. To complete the full 1031 Exchange and defer all capital gains taxes, a replacement property must be purchased, for at least $10,000,000, with a new $2,000,000 replacement mortgage (or you must contribute another $2,000,000 in cash).
Many investors and commercial landlords now face a tight lending environment, particularly troubling to 1031 Exchanges since the replacement property and its financing must be in place within 45 days. Should the property sale or financing fall thru – the entire 1031 Exchange is forever lost.
A Delaware Statutory Trust (DST) solves the financing problem as it is an investment that will meet your debt replacement requirement, offer passive investment income, shield you from personal liability beyond your investment and complete the 1031 Exchange. No individual financing underwriting or bank approval is ever required, as the DST owns 100% of the property and serves as the sole borrower, where you own a fractional share of the Trust. Your ownership in the Trust satisfies the equity and debt replacement requirement for a 1031 Exchange.
A DST is just one of the options available to those looking to complete a 1031 Exchange.If you have a property where you are expecting a taxable gain, or profit, of between $1,000,000 - $10,000,000, please give us a call before doing anything.
Mitch Grecco can be reached at (888) 245-2522, or an email at mitchg@barnettpropertymanagement.com, or have your CPA or attorney get in touch.
This is why the transaction is called an “EXCHANGE”. The properties are exchanged, but much of the other conditions remain unchanged, which is the premise behind the tax deferral.
For example, assume a $10,000,000 property was sold and the seller (you) received $8,000,000 of net proceeds after the $2,000,000 mortgage was paid off at closing. To complete the full 1031 Exchange and defer all capital gains taxes, a replacement property must be purchased, for at least $10,000,000, with a new $2,000,000 replacement mortgage (or you must contribute another $2,000,000 in cash).
Many investors and commercial landlords now face a tight lending environment, particularly troubling to 1031 Exchanges since the replacement property and its financing must be in place within 45 days. Should the property sale or financing fall thru – the entire 1031 Exchange is forever lost.
A Delaware Statutory Trust (DST) solves the financing problem as it is an investment that will meet your debt replacement requirement, offer passive investment income, shield you from personal liability beyond your investment and complete the 1031 Exchange. No individual financing underwriting or bank approval is ever required, as the DST owns 100% of the property and serves as the sole borrower, where you own a fractional share of the Trust. Your ownership in the Trust satisfies the equity and debt replacement requirement for a 1031 Exchange.
A DST is just one of the options available to those looking to complete a 1031 Exchange.If you have a property where you are expecting a taxable gain, or profit, of between $1,000,000 - $10,000,000, please give us a call before doing anything.
Mitch Grecco can be reached at (888) 245-2522, or an email at mitchg@barnettpropertymanagement.com, or have your CPA or attorney get in touch.