New York, NY
Author: Jeffrey Alan Kiesnoski
Fortitude Investment Group, LLC specializes in helping accredited investors nationwide locate securitized 1031 Real Estate replacement properties through its proprietary website www.1031dst.com .
www.1031dst.com is a web portal in which accredited investors can search out approved diversified 1031 Delaware Statutory Trust replacement properties in multiple real estate sectors for 1031 exchange through national DST sponsors.
Fortitude Investment Group, LLC believes any accredited investor considering a 1031 real estate exchange utilizing a DST should understand some of the basic but important exchange rules.
Simply put, in the real estate industry, a 1031 real estate exchange is a switch of one real estate asset for another for Investment Properties Not Personal (such as primary residences).
If an investor has a profit on an investment property that they are relinquishing, the investor will most likely will be subject to capital gains tax. Sometimes it can be north of 35% depending what state you live in. Under current policy there is no limit to the amount of 1031 exchange’s you can facilitate. In other words, “Swap to you Drop”. Fortitude Investment Group believes this is one of the greatest estate planning tools afforded to real estate investors due to the stepped up cost basis on inherited assets.
1.Timing Rules Associated with 1031 Real Estate Exchanges. Sellers can never take constructive receipt of funds on a relinquished property. This will automatically trigger a capital gain issue. Funds at closing must be placed with a Qualified Intermediary. In our opinion, it is extremely important to work with a national 1031 Qualified Intermediary firm that is bonded and insured. Please feel free to reach out to Fortitude Investment Group for references on national reputable firms throughout the country.
1a. After Closing Your 45-day Replacement Identification Period Begins. This is big one to swallow. Sellers after closing have only 45 days, not business but calendar days, to identify your replacement properties. You have an additional 135 calendar days to close on those properties that you have ID’d in the first 45 days. If you do not close on any of the properties you’ve identified, taxes will be due on any equity reaming with the Intermediary. If you diversified out of a single property into multiple properties and one or more of the multiple properties fall through you will be responsible for taxes owed on that amount or referred to as “BOOT”.
2.” BOOT”. Simply put, it is the cash that is left over the Qualified Intermediary pays back to you after the 180 days that is taxed that has not been used in you 1031 exchange and typically taxed as capital gains.
3. 1031 Real Estate Exchanges “Like-Kind” is Broad. In other words, you can exchange out of multifamily dwelling for triple net retail, student housing, etc. The rules are pretty open except when you get involved in 1033 Eminent Domain scenarios which I will discuss in a future article.
4. Mortgage Debt must be Replaced at Equal or Greater Levels on the Replacement Properties. This debt can be replaced by cash, but all net equity must be reinvested in the new property. Any equity retained after 180 days will be fully taxed.
5. Get Educated on 1031 Real Estate Exchanges utilizing the Delaware Statutory Trust (DST) if you’re an accredited investor.
1031 real estate exchanges utilizing the DST may be a viable alternative for many accredited investors. They can relinquish their investment properties and diversify into institutional quality securitized real estate DST’s, for as little as $100,000.00 in some cases, that may complete their exchange and give them the ability to diversify into multiple DST’s in various sectors such as net lease, healthcare, student housing, etc. Theses alternative property investments are 100% passive investments to the accredited investors and hand all control over to the sponsor managing the DST. Typically, they lifespan of a DST program is 7 to 10 years.
There are unique features associated with DST’s as they come in all shapes and sizes. Some are single dwellings and others are multiple buildings in multiple states. Some are all cash offerings and some come with as much at 70% loan to value (LTV). Typically, I’ve see offerings that are in the 50% LTV range. What’s unique about a DST is that if a seller needs to replace debt on an exchange the debt is held at the sponsor level, so the investor does not have to be underwritten nor does the debt show up on the credit of the investor yet the investor receives all of the potential benefits of the debt on the property while the debt remains non-recourse to the accredited investor.
DST’s may also be great backup ID’s for exchangers in their 45-day window in case one of their identified properties falls through, as well, they may work great for boot issues on an exchange.
As with all investments there are pros and cons and risks to any investment and one should consult with their Real Estate attorney, CPA and Registered Representative to see if a 1031 exchange using a DST is the appropriate avenue to explore.
The acquisition or sale of a Delaware Statutory Trust (DST) for the purpose of a tax-deferred 1031 exchange qualifies for treatment under section 1031 of the Internal Revenue Code (“1031 Exchange”). Investors will be able to sell the existing investment property or beneficial interest in a DST and complete a 1031 exchange into another “like-kind” investment property or beneficial interest in a new DST.
There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only.
The information herein has been prepared for educational purposes only, does not constitute an offer to purchase or sell securitized real estate investments, and is not meant to be interpreted as tax or legal advice. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. Please speak with your legal and tax advisors for guidance regarding your particular situation. Diversification is not a guarantee of future results.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC, an SEC registered investment adviser. Insurance offered through Concorde Insurance Agency, Inc. Fortitude Investment Group is independent of CIS, CAM and CIA.,
For more information, please contact:
Jeffrey Kiesnoski (631-474-7056)
Daniel Raupp (631-922-1195)
844-4DST1031 (844 437-8103)
Fortitude Investment Group LLC
AMERICAN EXPRESS TOWER NYC – PORT JEFFERSON NY – TEANECK NJ – MARLTON NJ – PALM BEACH FL – FORT LAUDERDALE FL
SOURCE: Fortitude Investment Group LLC 1/2017