What is DST? In a nutshell, it is the acronym for the Delaware Statutory Trust. It has gradually become a popular choice for today's fractional-ownership Section 1031 tax-deferred exchanges. A majority of DST 1031 exchange programs (many include multiple properties) is sponsored by national real estate companies, and are provided through securities broker/dealers. Typically, DST, as a source of replacement property, is commonly used by smaller, baby boomer investors for whom real estate is not their main business. They probably own a multifamily property, a rental house or two, or retail center, or even a smaller office building. Every property requires some sort of active management. After reaching the retirement age, a lot of these investors look to cash in on their real estate investments that are tax-deferred, of course. DST 1031 exchange can also assist real estate investors in addressing the traditional challenges of a 1031 exchange, especially the challenges of replacement property identification. DSTs Today Research shows that the industry saw more than $1 Billion of securitized exchanges in 2015, but a major resurgence from the depths of the recession. Latest industry estimates indicate that such exchanges will surpass $1.6 billion this year. It also states that 96% of the equity exchanged in 2015 came through DSTs. A few TICs came from smaller sponsors. The DST is a lot simpler and less expensive than the TIC structure. Usually, the lender gives only a single loan to the trustee of the DST, and not to each investor. The debt is, therefore, "nonrecourse" to the investors. Since a DST is absolutely unlimited in its number of investors, the minimum exchange amount is only $100,000. Investors are required to execute only a single agreement. As there is no Co-Ownership Agreement among the investors, no DST investor is threatened by the actions of any other investor. Types Of DST Property But, you can also expect net-leased retail and master-leased apartments to continue to be the most attractive for DST exchangers. Another growing trend from larger sponsors is the rising number of offerings with multiple properties in a single DST. It is partly to accommodate the rapidly increasing demand. Inland Private Capital, which registered 42% of 2015's transaction amount recently offered a portfolio of 17 self-storage properties in three states. Property Identification You guessed it right! The conventional three-property ID rule will not cover the multiple-property offerings mentioned above. Exchange experts say multiple-property DSTs bring into play the 200% rule. This means the exchanger can identify more than three properties till the time their combined fair market value does not cross 200% of the market value of the relinquished property. What's more, a DST 1031 exchange may actually end the need for identifying any property. If all the replacement properties are closed within the initial 45-day period, then the taxpayer is not required to provide a separate written ID. Individual tax situations can differ and can be quite complex. It is advisable to seek guidance from a tax professional in a specific situation. If you are searching for DST exchange, call 1031 property at 1-888-876-6005 or drop an email: [email protected]
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September 2019
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