One of the lesser known options we see when sellers of CRE are evaluating a 1031 exchange, is contributing to a DST (Delaware Statutory Trust). Delaware statutory trusts are used in real estate investing to allow multiple investors to pool equity contributions together in exchange for small holdings of the trust. In 2004, the IRS ruled that ownership interests within a DST qualify as a like-kind property that can be used in a 1031 exchange out of a DST. There are several institutional quality sponsors who have active DST programs across the country.
Below are some reasons on how they can be beneficial:
Asset Diversification
DSTs offers investors the opportunity to invest in fractional ownership of institutional-quality properties across different asset classes and markets.
Headache Free
Investing in a DST relieves investors of the day-to-day management responsibilities associated with real estate operations. Professional asset management firms handle property management and all operational responsibilities.
Tax Deferral
Like all 1031 exchanges, investing in a DST allows investors to defer capital gains taxes on the sale of their relinquished property.
Streamlined Process
Completing a 1031 exchange through a DST can be a relatively simple process compared to traditional process of identification.
Liquidity
Direct ownership of real estate is generally illiquid, DST interests can offer a certain level of liquidity. In most cases, Investors can sell their interests in a DST on the secondary market if they choose to recapitalize during the investment timeline.
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