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Understanding DST 1031 Exchanges

We speak to investors daily about the benefits of DSTs, but if you haven’t invested in a DST before, you may be wondering, what is a DST? What does DST even stand for?

What is a DST?

DST stands for Delaware Statutory Trust (DST). A Delaware Statutory Trust is a separate legal entity created as a trust under Delaware statutory law. While the concept of business trusts, especially those that involved the holding of real property, dates back as early as 16th century English Common Law, DSTs gained legal recognition with the passage of the Delaware Statutory Trust Act in 1988 (12 Del. C. 3801 et. Seq.,). Under the act, developed on the premise of trust law, statutory trusts became recognized as their own legal entity, separate from their trustee(s), offering freedom from the corporate law template. Within the tradition of trust law, freedom of contract allows the trustee(s) to structure their entity in a way that is most beneficial to the relationship of all parties and their expertise while offering liability protection similar to that of a limited liability company or partnership.

A Delaware Statutory Trust is in the nature of a unit investment trust or a fixed investment trust. The trust acquires and maintains assets such as securities, real estate, etc. Investors then have an opportunity to purchase units of beneficial interests in the trust, thereby becoming beneficiaries of the trust’s assets. Because the trust is not considered a taxable entity, all the profits, losses, etc. are passed through directly to the beneficiaries. This type of trust offers a vehicle for investors to have interests in certain assets without having to hold the title or manage those assets.

For the purpose of completing a 1031 exchange, IRS Revenue Ruling 2004-86 opened the way for eligible DST investments to qualify as the replacement property in a 1031 exchange. This revenue ruling states that a beneficial interest in a DST that owns real estate can be considered a "direct interest in real estate." As a result, owning interest in a DST that owns real estate equates to holding title on real estate in the eyes of the IRS. Because of this ruling, DSTs have become one of the most common ownership structures used by smaller investors to own investment-grade real estate.

Replacement Property Identification

There are very specific requirements for identifying and acquiring potential like-kind replacement properties in your 1031 exchange transaction. Replacement properties that you are considering for acquisition in your 1031 exchange should be identified to your Qualified Intermediary (Accommodator) and must be identified no later than midnight of the 45th calendar day following the close of your relinquished property sale transaction.

Baby Boomers: Controlling Wealth & Influencing the Economy

The Baby Boomers: 76 million people currently between the ages of 53 and 71 who are significantly impacting the U.S. economy. This group is not only increasing the demand for certain services and goods, but, because of their spending habits, they are boosting the economy in a way no other generation has the ability to do.

Aging America: Driving the Demand for Healthcare Real Estate

Since 2011, the baby boomer generation has been reaching the age of 65, an age at which they join the group of Americans using the bulk of healthcare resources. A generation of about 76 million people today will continue to turn 65 through the year 2030.

Investing in Senior Housing Properties - Part 2

As with any investment, it’s important to do the proper due diligence to know where your hard-earned money is going. When it comes to senior living investments, some think it’s similar to the traditional multifamily, office or industrial properties they have invested in before. Although in some instances this may be true, senior housing and care have some specific differences from other property types that are important to know before you invest.

Investing in Senior Housing - What is Senior Housing & Care?

You’ve probably noticed senior housing and care has become a popular asset class among both institutional and individual investors in recent years. It has already outperformed other noted real estate sectors and we believe it will continue to be a favorable opportunity due to impressive demographic fundamentals.

Fulfilling Debt Requirements with DSTs - 1031 Exchange Requirements Fulfillment

Last week as you read about the necessity of adhering to the debt replacement principle when completing a 1031 exchange, you may have had one important question running through your mind: “Can I obtain debt to meet my 1031 exchange requirements if I invest in a Delaware Statutory Trust (DST)?”

Avoiding Taxes and Mortgage Boot Using the Debt Replacement Principle

“Why do I owe taxes on the property I sold when I completed a 1031 exchange with the purchase of a new property?” This is a question that is far too common by 1031 exchangers. The usual answer is Boot.

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