Powerful Tool to Defer Capital Gains Tax
Section 1031 of the Internal Revenue Code provides an effective strategy for deferring the capital gains tax that may arise from your business/investment property sale. By exchanging the property for like-kind real estate, property owners may defer their tax and use all of the proceeds for the purchase of replacement property. Like-kind real estate includes business/investment property, but not the property owner’s primary residence. Section 1031 does not apply to the exchange of stocks or bonds.
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Investments in private offerings are generally illiquid in nature, do not offer guarantees of income or that objectives will be met, may be considered speculative in nature and could lose some or all of their value and principal investment. Some investments herein may not be suitable for all investors. Some investments herein may not be suitable for all investors. We recommend you work closely with all your advisors to make the best decisions for your personal financial portfolio. San Jose DST 1031 Exchange
Additional Reasons to Participate
in a 1031 Exchange
- Relieve the burden of active real estate ownership
- Obtain ownership in shopping centers, multifamily residential and/or triple-net property in good locations
- Diversify your real estate portfolio by geography and property type
- Invest in single asset and/or multiple asset offerings
- Choose from highly leveraged, moderately leveraged, or no leverage offerings
- Facilitate estate planning
- Choose from many sectors, including retail, office, industrial and multifamily
While there are many benefits to 1031 DST investing, there are strict timing limitations. Specifically, if a 1031 exchange transaction is not properly constructed and executed in a timely manner, then an investor may lose all tax benefits of such transaction, including depreciation recapture. The relinquished property must be a qualifying property (i.e., like-kind replacement property). A Qualified Intermediary, as an independent third party, is needed to facilitate a 1031 exchange transaction and hold the funds on behalf of the investor.
CASH INVESTMENT OPTION
1031 EXCHANGE INVESTMENT OPTION
REASONS TO PARTICIPATE
There are three basic steps in any 1031 exchange:
- Exchanger sells property and proceeds are escrowed with a Qualified Intermediary (ask for a referral)
- Qualified Intermediary (or Q.I.) transfers funds for purchase of replacement property
- Exchanger receives beneficial interest in the Delaware Statutory Trust.
Guidelines to Remember
- Seller should have the contract specify that the sale may be structured as a 1031 exchange.
- Seller cannot receive or control the net sale proceeds – the proceeds must be deposited in a qualified escrow.
- Replacement property must be like-kind to the relinquished property.
- The replacement property must be identified within 45 days from the sale of the original property.
- The replacement property must be acquired within 180 days from the sale of the original property.
- In a reverse exchange the taxpayer acquires the replacement property prior to disposing of the relinquished property.
- Generally, the cash invested in the replacement property must be equal to or greater than the cash received from the sale of the relinquished property.
- The debt placed or assumed on the replacement property must be equal to or greater than the debt relieved with regard to the relinquished property.
*The Sherer Group, LLC. does not offer tax advice. This material is not intended to replace the advice of a qualified tax advisor. Investors should consult with their tax advisors before pursuing a 1031 exchange.