What are My 1031 Exchange Options?
Real estate investors have been utilizing 1031 Exchanges, also known as “like kind exchanges”, for nearly 100 years. Why? Because 1031 Exchanges present an opportunity to defer federal capital gains tax, state capital gains tax, net investment income tax and depreciation recapture. With a 1031 Exchange, real estate investors can reposition real estate while preserving their entire investment.
Understanding how IRC 1031 Exchange replacement properties work is crucial to performing a successful strategic Exchange. There are many 1031 Exchange replacement property options, but each property type has its respective strengths and weaknesses – we work to help investment real estate owners understand what properties can be selected and combined to address their own unique objectives.
To learn more about 1031 exchanges, 1031 Exchange rules, how like-kind Exchanges work, and what 1031 Exchange options are available, download our FREE guide, “Understanding 1031 Exchanges”.
Types of 1031 Exchange Replacement Properties
Delaware Statutory Trusts (DSTs)
One of the most popular 1031 Exchange options is a Delaware Statutory Trust (DST), which allows investors to own a “fractional interest” in high-quality institutional real estate that is acquired and managed by large professional real estate firms. DST investments can be combined to create a diversified portfolio of passive property for an accredited investor. Additionally, if desired, DST real estate can allow for an eventual 1031 Exchange into a REIT.
Fee Simple Property
Fee-Simple Property is a broad category that includes all real estate owned outright by an investor. Fee-Simple Property is best suited for investors who value control of their real estate and are not opposed to the effort and time required for active property management. Additionally, Fee-Simple Property includes properties acquired with the intent of performing a 1031 Exchange from a rental property to a primary residence or vacation home.
Net Lease Property
Net Lease Property is a sub-category of Fee-Simple Property and includes all Fee-Simple Property with a long-term structured net lease. Fee-Simple Net Lease Property is for investors who value outright control of their real estate assets but do not want to put forward the effort required for active property management. We work with single net lease, double net lease, and triple net lease properties leased to high-credit tenants to provide stable income potential.
Tenants-in-Common (TIC) Property
Tenants-in-Common Property is another form of fractional ownership that allows investors to own a percentage interest in a large institutional property with added flexibility beyond what is available within DST Property. Generally, we work with TIC properties that have a value-add component and place a greater focus on appreciation versus current cash flow. TIC properties can allow for refinancing following an Exchange and have investment minimums of $1M.management. We work with single net lease, double net lease, and triple net lease properties leased to high-credit tenants to provide stable income potential.
1031 Exchange Examples
A 1031 Exchange is about exchanging any real property for like-like real property. Commercial property including rental properties, condominiums, shopping centers, strip malls, timberland, gas and water interests, and land represent real property eligible for a 1031 exchange. One of the popular examples of 1031 Exchange replacement properties include Delaware Statutory Trusts or DST properties. The slideshow below features 1031 Exchange examples of recently closed DST offerings.