1031 Exchanges & DST Investing

A 1031 exchange — named for Section 1031 of the Internal Revenue Code — is a tax-deferral mechanism that allows an investor to sell a qualifying investment property and reinvest the proceeds into a "like-kind" replacement property while deferring the recognition of capital gains. Strict timing and procedural requirements apply. Investors should consult qualified tax and legal counsel before pursuing an exchange.

A Delaware Statutory Trust is a legal entity formed under Delaware law that holds real property. Investors purchase fractional beneficial interests in the DST rather than directly owning the property. Certain DST interests may qualify as like-kind replacement property in a 1031 exchange, subject to IRS guidance and specific legal requirements.

Under IRS Revenue Ruling 2004-86, certain DST interests may be treated as direct interests in real property for 1031 exchange purposes, potentially qualifying as replacement property. This requires careful structuring and compliance with specific requirements. Investors must work with qualified tax and legal counsel to evaluate whether a specific DST offering meets their exchange requirements.

An investor must identify potential replacement property within 45 days of the relinquished property closing, and must close on the replacement property within 180 days of that closing (or the tax return due date, if earlier). These deadlines are strict and generally cannot be extended. A Qualified Intermediary is required to hold exchange funds.

DST offerings are available only to accredited investors as defined under Regulation D of the Securities Act of 1933. Investors must meet applicable income, net worth, or professional qualification thresholds. All investments require review of the private placement memorandum and subscription through a registered broker-dealer.

No. DST investments are illiquid. There is no established secondary market for DST beneficial interests, and investors should expect to hold their investment for the duration of the projected hold period. Investors should carefully consider their liquidity needs before investing.

DST investments involve significant risks including the potential loss of principal, illiquidity, dependence on the operating performance of the underlying property and tenants, reliance on the sponsor's management, and risks associated with debt financing. A full description of risks is contained in the offering's private placement memorandum. Review it carefully with qualified advisors.

No. Nothing provided by Cypress Exchange Properties on this website or in connection with its offerings constitutes tax, legal, accounting, or investment advice. All investors should consult their own qualified tax, legal, and financial professionals before making any investment or exchange decision.