118252 Shaffer Drive, Building B, Littleton CO 80127

1031 Reinvestment Tips, Plus DSTs

Real estate transactions are still happening in 2020, and one area of concern is the investor/partner approach to 1031 exchange reinvestment.

We are noticing changes in ownership stakes as part of reinvestment, but the reinvestment deal structuring can put investing partners’ tax deferrals at risk.

The rules are fairly clear on the definition of like-kind exchanges of property, but investors or partners can run into trouble with entity selection for the replacement property or when swapping out a current investment partner for new investors.

Whenever you have investors who wish to leave an investment partnership and/or bring in new investors, you must be careful with structuring the replacement property transaction in order to retain your valuable tax deferral. To support your decisions on a like-kind exchange replacement property or entity structure, we recommend analysis by your CPA and real estate attorney. We can assist in reviewing your plans and identify an approach that helps you meet financial and ownership goals while managing risk.

Speaking of like-kind replacement properties, we have seen greater interest in Delaware statutory trusts (DST). DSTs can help owners/investors move from an active investment to a passive equity investment while diversifying their portfolio. DSTs are invested in properties across the country and managed by professional investment real estate asset managers and property managers. They are attractive for investors nearing or beginning retirement, for example, or who want to avoid active property management.

If you have questions about how a DST might fit your real estate investment goals, contact our tax planning group.