1031 EXCHANGE

1031 Exchange Strategy

An Advanced Real Estate Strategy

The vast majority of commercial real estate buyers don't make use of the wealth-building advantages of the tax-deferred 1031-Exchange. Once a property sale goal is realized, many owners sell the property, pay taxes, and then purchase other real estate, without using a 1031-Exchange. 1031 Exchanges are useful in a wide variety of circumstances. They provide excellent opportunities for resourceful buyers to create transactions which would not be possible through a sale-purchase format.


MAXIMIZING RETURN

Sophisticated real estate owners know that leverage can maximize wealth. A 20% down payment can result in a 50% investment return with the right amount of debt and financial leverage. Tax deferment is also a type of leverage. Just as you use debt financing to leverage a purchase, you can use tax savings to acquire even greater wealth. With the successful use of tax-deferred 1031-Exchanges, a savings of 20% to 40% of capital gains tax and depreciation recapture on the sale of their prior property can now be retained to acquire larger properties. A buyer can accelerate his investment horizon by many years by carefully developing an strategy utilizing these exchanges.

GROWING EQUITY WITHOUT CAPITAL GAINS

The overriding advantage of a 1031 Exchange lies in the ability to move equity from property to property without having to pay the capital gains taxes. Exchangers can create an entire purchase program using the wide variety of benefits available, and a buyer can move successively from one 1031 Exchange to another any number of times. You don't need to wait until a property is under contract to get the process started. Please contact us to discuss your specific requirements.

"LIKE-KIND" PROPERTY EXCHANGES

The Internal Revenue Code Section 1031 (a) (1) says, "no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or for investment." What does the code really mean? Property that is held for investment can be exchanged for any other property that is being held for investment and the owner will be allowed to defer paying capital gains taxe

What are some properties held for productive use in a trade or business or for investment? The list includes apartments, single-family rentals, office buildings, retail centers, warehouses, farms, hotels, and raw land, to name a few.

The way the code reads, any combination of these properties can be exchanged. For example that means an apartment can be exchanged for an office building, a warehouse exchanged for a retail center, or raw land exchanged for a single-family rental.

In an exchange of real property for real property, the fact that any real property is improved or unimproved is immaterial, because that fact relates only to the grade or quality of the investment property and not to its kind or class.

WHY A 1031 EXCHANGE?

Exchanging or "trading up" under Section 1031 and the 2004 IRS DST guidelines allows owners to re-invest in larger commercial properties while also deferring capital gains taxes. The most common reasons for exercising a 1031-Exchange are:

Exchanging from commercial property which can't be readily refinanced, such as land, to improved property which will support a new loan. This makes it possible to obtain cash, and trading from non-productive land to improved property can also create improved cash flow.
Exchanging from a high-appreciation property (such as a rental house or apartment) to a high-cash-flow property (such as a retail center), or vice-versa, depending on investment objectives.
Exchanging from a property with high debt service payments into a property with lower payments or lower interest.
Exchanging to change your lifestyle. For example, exchanging into a property requiring no management for a property owner wanting to travel or retire.
Exchanging from several smaller properties to a single larger building to consolidate ownership benefits.
Exchanging from a larger building to several smaller properties to improve liquidity or to diversify ownership among several persons.
Exchanging to convert the nature of the investment. For example, exchanging from a rental house or apartment to a small medical building for the doctor who wishes to practice in a building he owns.
Leases of 30 years or more may be traded for real estate. Sale lease backs have been ruled to be exchanges, if handled properly.
Exchanging for a property that will be easier to sell.

Delaware Statutory Trust DST Investments
THE IRS AND 1031 EXCHANGES

The delayed exchange procedure was brought to the attention of the real estate community when a property owner by the name of T.J. Starker and his family attempted to trade timberland to the Crown Zellerbach Corporation in exchange for a promise to deliver suitable trade properties to the Starkers in the future.

The IRS challenged this transaction and after a series of tax court trials, the 9th Circuit Court of Appeals ruled in favor of Mr. Starker. Regulations issued in 1991 validated the use of the 1031 Exchange on a national basis.

The 1031 Exchange is an entirely legal and defensible way to defer capital gains taxes, and has been used thousands of times over the years.

This website does not offer to sell, or a solicitation of an offer to buy, securities. Offers can only be made through the Private Placement Memorandum which contains various and important risk disclosures. This web site does not purport to be complete and should be viewed in conjunction with the Private Placement Memorandum. An investment of this sort is speculative and involves a high degree of risk. Projections of future performance contained herein are based on specific assumptions discussed more fully in the Private Placement Memorandum and do not constitute a guaranty of future performance.

DST Interests in any of the properties displayed on this website may be sold only to "accredited investors," as defined in Regulation D under the U.S. Securities Act of 1933, as amended (the "Securities Act"), which, for natural persons, refers to investors who meet certain minimum annual income or net worth thresholds. Offers and sales of DST interests have not and will not be registered under the Securities Act or the laws of any U.S. state or non-U.S. jurisdiction and may be offered only pursuant to an exemption from such registration. Neither the U.S. Securities and Exchange Commission nor any other regulatory authority has passed upon the merits of an investment in the DST Interests, has approved or disapproved of DST Interests or passed upon the accuracy or adequacy of this website and any supplementary materials describing the DST Interests. DST Interests are also not subject to the protections of the Investment Company Act of 1940, including the limitations on self-dealing, affiliated transactions and leverage contained therein. DST Interests are subject to legal restrictions on transfer and resale in accordance with the governing documents of the Trust and applicable securities laws, and investors may be unable to sell or transfer their DST interests. In addition, there is no public market for the DST interests and no such market is expected to develop in the future. Investing in the DST securities involves risk, and investors should be able to bear the loss of their investment.