{"id":298,"date":"2023-10-05T16:47:39","date_gmt":"2023-10-05T16:47:39","guid":{"rendered":"https:\/\/royalinkprojects.com\/cai\/?page_id=298"},"modified":"2025-06-26T04:43:25","modified_gmt":"2025-06-26T11:43:25","slug":"1031-exchange-defined","status":"publish","type":"page","link":"https:\/\/royalinkprojects.com\/cai\/1031-exchange-defined\/","title":{"rendered":"1031 Exchange Defined"},"content":{"rendered":"\n<div class=\"wp-block-group fullWidth text-center mb-4 mb-lg-5 pb-sm-4\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h1 class=\"wp-block-heading red title title-xxl fw-900 mb-0\">1031 Exchange Defined<\/h1>\n\n\n\n<p class=\"title-xs\">1031 Tax-Deferred Exchange Details You Need To Know<\/p>\n<\/div><\/div>\n\n\n\n<p class=\"title-xs\">The following information will provide you a basic overview of Internal Revenue Code Section 1031 Tax- Deferred Exchanges. Please consult with your professional tax, legal, and financial advisors regarding your specific financial position, real estate holdings, and how Internal Revenue Code Section 1031 pertains to you. It is important to understand that even though taxes on the sale of real estate can be deferred by implementing a properly executed 1031 tax-deferred exchange, in many cases it may financially more beneficial for a seller of real estate to simply pay the taxes due on the original sale.<\/p>\n\n\n<div class=\"title-xs\"><style>#sp-ea-1656 .spcollapsing { height: 0; overflow: hidden; transition-property: height;transition-duration: 300ms;}#sp-ea-1656.sp-easy-accordion>.sp-ea-single {margin-bottom: 10px; border: 0px none #e2e2e2; }#sp-ea-1656.sp-easy-accordion>.sp-ea-single>.ea-header a {color: #000000;}#sp-ea-1656.sp-easy-accordion>.sp-ea-single>.sp-collapse>.ea-body {background: transparent; color: #4c4c4c;}#sp-ea-1656.sp-easy-accordion>.sp-ea-single {background: transparent;}#sp-ea-1656.sp-easy-accordion>.sp-ea-single>.ea-header a .ea-expand-icon { float: right; color: #444;font-size: 16px;}#sp-ea-1656.sp-easy-accordion>.sp-ea-single>.ea-header a .ea-expand-icon {margin-right: 0;}<\/style><div id=\"sp_easy_accordion-1696515558\"><div id=\"sp-ea-1656\" class=\"sp-ea-one sp-easy-accordion\" data-ea-active=\"ea-click\" data-ea-mode=\"vertical\" data-preloader=\"\" data-scroll-active-item=\"\" data-offset-to-scroll=\"0\"><div class=\"ea-card ea-expand sp-ea-single\"><h3 class=\"ea-header\"><a class=\"collapsed\" id=\"ea-header-16560\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse16560\" aria-controls=\"collapse16560\" href=\"#\" aria-expanded=\"true\" tabindex=\"0\">What is a 1031 tax deferred exchange?<\/a><\/h3><div class=\"sp-collapse spcollapse collapsed show\" id=\"collapse16560\" data-parent=\"#sp-ea-1656\" role=\"region\" aria-labelledby=\"ea-header-16560\"> <div class=\"ea-body\"><p>A standard 1031 tax-deferred exchange, also known simply as a \u201c1031 exchange\u201d is governed by IRC Section 1031. It allows a seller of real estate to potentially defer up to 100% of the capital gain, therefore 100% of the taxes he\/she would owe on the sale of the property that is held for investment.<\/p><p>IRC Section 1031(a)(1) states:<\/p><p><em>\u201cNo gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.\u201d<\/em><\/p><p>The basic description of a 1031 exchange is the following: you sell a property [called the \u201crelinquished\u201d property] and after following the relevant IRS rules, you purchase a new property [called the \u201creplacement\u201d property]. This process avoids paying tax on the sale of the relinquished property.<\/p><p>Sellers must use a specialized escrow agent called a Qualified Intermediary (Qi) or Accommodator who provides 1031 exchange services.<\/p><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><a class=\"collapsed\" id=\"ea-header-16561\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse16561\" aria-controls=\"collapse16561\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\">What does Like-Kind property mean?<\/a><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse16561\" data-parent=\"#sp-ea-1656\" role=\"region\" aria-labelledby=\"ea-header-16561\"> <div class=\"ea-body\"><p>The term \u201clike-kind\u201d refers to the categories listed in 1031(1)(a)\u2014productive use, trade or business use, or investment.\u00a0 Like-kind does not mean that if you sell a specific type of property (like multifamily) that you must reinvest into that same type. Multifamily can be exchanged for raw land, commercial buildings, or even a Tenant in Common (TIC) or a Delaware Statutory Trust (DST).<\/p><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><a class=\"collapsed\" id=\"ea-header-16562\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse16562\" aria-controls=\"collapse16562\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\">Do I have to exchange real estate simultaneously?<\/a><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse16562\" data-parent=\"#sp-ea-1656\" role=\"region\" aria-labelledby=\"ea-header-16562\"> <div class=\"ea-body\"><p class=\"normal\" style=\"margin-bottom: 6.0pt\"><span lang=\"EN\">The answer is \u201cNo\u201d. A 1031 exchange can be completed when the replacement property is purchased earlier (reverse exchange), at the same time (simultaneous exchange), or when the replacement property is purchased later (regular exchange). Several rules are critical to remember:<\/span><\/p><ul class=\"listWicon title-xxs fw-bold\"><li class=\"normal\"><span lang=\"EN\">You must open a 1031 account with a Qualified Intermediary (Qi) before you close escrow on the property you are selling. A regular escrow agent receiving funds will void an opportunity to do an exchange because you have had constructive receipt of the funds.<\/span><\/li><li class=\"normal\"><span lang=\"EN\">You have a maximum of 45 days from the date of sale, including weekends and holidays, to identify your replacement property.<\/span><\/li><li class=\"normal\"><span lang=\"EN\">You have a maximum of 180 days from the date of sale, including weekends and holidays, to close escrow the replacement property. However, if your tax filing deadline to report the sale\/exchange of the property occurs prior to 180 days, then you have that lesser time to close escrow on the replacement property.<\/span><\/li><li class=\"normal\"><span lang=\"EN\">(PLEASE consult an experienced Qi to help you navigate through the exchange process.)<\/span><\/li><\/ul><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><a class=\"collapsed\" id=\"ea-header-16563\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse16563\" aria-controls=\"collapse16563\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\">How much equity from the sale of the relinquished property needs to be reinvested?<\/a><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse16563\" data-parent=\"#sp-ea-1656\" role=\"region\" aria-labelledby=\"ea-header-16563\"> <div class=\"ea-body\"><p>To receive a <u>full<\/u> deferral of taxes paid, the replacement property must receive 100% of the net equity proceeds from the relinquished property. Funds must go directly to the Qi. Any funds you receive are considered \u201cboot\u201d and are subject to taxation.<\/p><p>Sometimes investors choose to receive a portion of the proceeds from the initial sale, thus paying some tax, and reinvesting the remaining funds in a replacement property.\u00a0 PLEASE consult a professional to discuss your specific situation.<\/p><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><a class=\"collapsed\" id=\"ea-header-16564\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse16564\" aria-controls=\"collapse16564\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\">Can the replacement property cost less than the relinquished property?<\/a><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse16564\" data-parent=\"#sp-ea-1656\" role=\"region\" aria-labelledby=\"ea-header-16564\"> <div class=\"ea-body\"><p class=\"normal\" style=\"margin-bottom: 6.0pt\"><span lang=\"EN\">Yes, however, you will not benefit from 100% tax deferral if you do so. To receive 100% tax deferral, your replacement property must be of equal or greater value than the relinquished property.<\/span><\/p><ul class=\"listWicon title-xxs fw-bold\"><li class=\"normal\"><span lang=\"EN\">Another important requirement is that the replacement property must have the same debt as the relinquished property unless you \u201cbuy down\u201d the debt using cash from sources not in the exchange.<\/span><\/li><li class=\"normal\"><span lang=\"EN\">[Note that many investors choose to invest in DSTs because it is easier to find a replacement property of the exact value you need since a DST investment is flexible in how much you can invest.]<\/span><\/li><\/ul><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><a class=\"collapsed\" id=\"ea-header-16565\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse16565\" aria-controls=\"collapse16565\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\">If I do a 1031 exchange, can I avoid paying capital gain taxes on that property ever again?<\/a><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse16565\" data-parent=\"#sp-ea-1656\" role=\"region\" aria-labelledby=\"ea-header-16565\"> <div class=\"ea-body\"><p class=\"normal\" style=\"margin-bottom: 6.0pt\"><span lang=\"EN\">It depends. A 1031 exchange is a tax deferred tool used by property owners to defer tax payments until a later date. If a replacement property is sold in the future and proceeds are received by the seller, then taxes would be due at that time. However, if a replacement property remains in an exchange and the seller dies, it may be that some or all the taxes, when the replacement property is sold, could be avoided due to real estate receiving a step up in cost basis. PLEASE consult a professional to discuss your specific situation.<\/span><\/p><\/div><\/div><\/div><\/div><\/div><\/div>\n\n\n<div class=\"wp-block-group d-none\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h4 class=\"wp-block-heading title-md fw-bold mb-4 mb-sm-5\">Many Investors Would Like These Options <br \/>When They Sell Their Property<\/h4>\n\n\n\n<div class=\"wp-block-cover is-light fullWidth\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-background-dim-100 has-background-dim\" style=\"background-color:#ebebeb\"><\/span><div class=\"wp-block-cover__inner-container is-layout-constrained wp-block-cover-is-layout-constrained\">\n<div class=\"wp-block-group container py-4 py-sm-5\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<ul class=\"wp-block-list listWicon title-xxs fw-bold\">\n<li>Defer current income taxation on the property sale<\/li>\n\n\n\n<li>Identify a suitable replacement property in 45 days<\/li>\n\n\n\n<li>Have an opportunity to preserve and potentially increase cash flow<\/li>\n\n\n\n<li>Have an opportunity to obtain quality tenants<\/li>\n\n\n\n<li>Eliminate management responsibilities<\/li>\n\n\n\n<li>Diversify real estate investments, potentially reducing portfolio risk<\/li>\n\n\n\n<li>Defer depreciation recapture<\/li>\n\n\n\n<li>Own high-quality, investment-grade real estate<\/li>\n\n\n\n<li>Reduce income taxation on rental income through depreciation and other deductions<\/li>\n\n\n\n<li>Potentially reduce the liability of financing individually<\/li>\n<\/ul>\n<\/div><\/div>\n<\/div><\/div>\n\n\n\n<h4 class=\"wp-block-heading title-xs fw-900 mt-4 mt-sm-5 py-2\">ABOUT THE TENANT | PACTIV, LLC<\/h4>\n\n\n\n<div class=\"wp-block-group title-xs\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p>DST real estate ownership might help provide investors with opportunities in their 1031 Exchange. Many real estate investors have yet to learn about an alternative option they can use to help complete a 1031 exchange called a Delaware Statutory Trust Real Estate Investment, which is commonly referred to as a DST.<\/p>\n\n\n\n<p>A properly structured 1031 DST allows an investor to sell an investment real estate asset, defer the income taxation on the sale through Internal Revenue Code Section 1031, and buy a DST replacement property on a tax-deferred basis. A 1031 DST is a legal Trust structure that is created under Delaware law, designed to qualify as Qualified Replacement Property to satisfy IRS replacement property rules in a 1031 tax-deferred exchange, as provided in IRS Revenue Ruling 2004-86. A DST has a legal Trust document, a Trustee, beneficiaries, assets, responsibilities, rules, and procedures. A DST can provide potential benefits for many individuals, but like all Trusts, will not be suitable for everyone. The basic legal structure of a DST is to fund assets into the Trust, have a Trustee provide guidance and property management, and distribute income to beneficiaries.<\/p>\n\n\n\n<p>The DST investor will own a portion of the Trust, called a Beneficial Ownership Interest, with the Trust owning the underlying real estate. There will be multiple DST owners and each will own their own percentage of the Trust. A DST investor is called a DST Beneficiary. This means that the investor receives the potential economic benefits of the DST. The actual ownership is evidenced by a Purchase Agreement and Executed Trust Documents. For 1031 tax-deferred exchange and income tax purposes, the investor is viewed by the IRS to own the real estate directly. For all other purposes, the investor is seen as a passive participant.<\/p>\n\n\n\n<p>It is important to realize that a DST investor must follow all Internal Revenue Code Section 1031 tax-deferred exchange laws, including the requirement that the DST replacement property be identified within 45 days of close of escrow of the original property sale, and the DST replacement property purchased must close escrow within 180 days. While the 45-day and 180-day rules are the same as a standard 1031 exchange, investing in a DST as a 1031 replacement property can help real estate owners locate suitable replacement properties efficiently (as this alternative can provide investment options beyond what are available to the investor if he or she had invested in real estate directly).<\/p>\n\n\n\n<p>It is equally important for a DST to follow all aspects of Revenue Ruling 2004-86, issued in 2004, to qualify as a 1031 Qualified Replacement property. This ruling allows real estate investors, in many cases, to exchange out of individually owned and self-managed property, on a tax-deferred basis using a 1031 exchange, into a Beneficial Interest of a Trust that owns investment-grade real estate. In many cases, the real estate owned by the Trust is a larger, higher-investment-grade property, and is managed by a team of real estate property management professionals. Title insurance will be issued on the real estate assets purchased by the Trust. Examples of DST real estate could include office buildings, shopping centers, apartment buildings, industrial properties, warehouses, raw land, and even oil and gas interests.<\/p>\n\n\n\n<p>Each DST owner receives a proportionate share of net income, income tax deductions, and appreciation or value loss of the DST property based on their individual Beneficial Interest ownership percentage. If a DST investor owns a 5.00% Beneficial Interest in the Trust, he or she will receive 5.00% of the economic outcome of the Trust asset performance, meaning he or she receives 5.00% of the net income or losses, 5.00% of the income tax deductions, and 5.00% of the appreciation or losses.<\/p>\n\n\n\n<p>The DST property can provide the investor with net rental cash flow opportunities that traditionally have compared favorably with individually owned and self-managed properties. It is very important to understand that rental cash flow outcomes vary from program to program depending upon the real estate market where the property is situated and associated property occupancies and that net rental cash flow is not guaranteed. The investor is no longer required to manage the property, nor is he or she personally liable for the debt. The DST property is managed by an experienced management company. The investor is passive and is not required to participate in any decisions regarding the property: no tenants, no toilets, no telephone calls, no trash, and no time commitments.<\/p>\n\n\n\n<p>Investing in a Delaware Statutory Trust \u2013 DST property carries significant risks, including but not limited to market risk, liquidity risks, income risks, principal, risks, due diligence failure risks, and income tax risks. There is no guarantee that DST net income will flow to an investor as originally projected, and there is no guarantee that a DST property will appreciate in value, or that it won\u2019t go down in value. DST investments are illiquid assets, and there is currently no established secondary market.<\/p>\n\n\n\n<p>There are loads, fees and expenses associated with every DST investment which must be considered before any investment is made in a DST. For information about the investment risks and fees associated with DST investments, please see the section of this document titled \u201cDST RISKS, FEES, Rules and Restrictions\u201d.<\/p>\n\n\n\n<p>Once the sale of the original property is finalized, as previously stated, the investor has 45 days to locate and identify one or more suitable DST investment properties. In this regard, an established financial advisor or registered representative, who has experience in DST investments, can be very useful in helping the investor to locate a property that makes sense from a standpoint of economics and due diligence. In many cases, such a property might be one that is:<\/p>\n\n\n\n<ul class=\"wp-block-list fw-normal lh-normal mb-sm-5 text-black\">\n<li>High-quality, investment-grade real estate<\/li>\n\n\n\n<li>Office, retail, apartment, or industrial use<\/li>\n\n\n\n<li>Generating competitive cash flow from established corporate tenants<\/li>\n\n\n\n<li>Managed by a professional property manager<\/li>\n\n\n\n<li>Reviewed by a reputable third-party due diligence analyst and\/or law firm<\/li>\n\n\n\n<li>Offered by a reputable DST Sponsor with competitive fees and an established track record<\/li>\n\n\n\n<li>Reasonably financed with a suitable debt-to-equity ratio<\/li>\n<\/ul>\n\n\n\n<p>DST 1031 Real Estate Investments are structured by \u201cSponsors\u201d. The Sponsor will establish an Affiliate to serve as the \u201cTrustee\u201d of the DST to manage the transaction from start to finish. As such, investors will not deal with the property tenants on a day-to-day basis or assume any responsibilities for property management.<\/p>\n\n\n\n<p>The DST is therefore a suitable opportunity for those who want to invest in real estate on a passive basis (but unsuitable for those who want to be involved in property management).<\/p>\n\n\n\n<p>Individuals who are ready to relinquish the day-to-day burdens of being a landlord, or who own land and would like an income-producing property, can potentially benefit from the DST structure.<\/p>\n<\/div><\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<div class=\"wp-block-group fullWidth text-center mb-4 mb-lg-5 pb-sm-4\">\n<div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n1031 Exchange Defined<\/p>\n<p>1031 Tax-Deferred Exchange Details You Need To Know\n<\/p><\/div>\n<\/div>\n<p>The following information will provide you a basic overview of Internal Revenue Code Section 1031 Tax- Deferred Exchanges. Please consult with your professional tax, legal, and financial advisors regarding your specific financial position, real estate holdings, and &#8230;<a class=\"moretag\" href=\"https:\/\/royalinkprojects.com\/cai\/1031-exchange-defined\/\">Read More ><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"class_list":["post-298","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/royalinkprojects.com\/cai\/wp-json\/wp\/v2\/pages\/298","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/royalinkprojects.com\/cai\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/royalinkprojects.com\/cai\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/royalinkprojects.com\/cai\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/royalinkprojects.com\/cai\/wp-json\/wp\/v2\/comments?post=298"}],"version-history":[{"count":37,"href":"https:\/\/royalinkprojects.com\/cai\/wp-json\/wp\/v2\/pages\/298\/revisions"}],"predecessor-version":[{"id":2353,"href":"https:\/\/royalinkprojects.com\/cai\/wp-json\/wp\/v2\/pages\/298\/revisions\/2353"}],"wp:attachment":[{"href":"https:\/\/royalinkprojects.com\/cai\/wp-json\/wp\/v2\/media?parent=298"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}