FAQ
General Questions
Beacon 1031 is a sales group that is a leading resource for all your 1031 exchange needs. Whether
you are seeking a 1031 exchange into a property that you would manage or would like to learn about the
pros and cons of experiencing truly passive real estate investing with a Delaware Statutory Trust (DST),
we can be of assistance. We are here to learn how your current 1031 exchange fits into your real estate portfolio and your long-term goals. We are here to guide you through the complexities of the 1031 exchange process and provide you
with strategies and options that you may not have been fully aware of.
20+ Years of Team Member Full Time Real Estate Experience. Do not be deceived by others that falsely claim to have real estate experience and have never been licensed to sell real estate, owned rental properties, managed properties or have never been involved in commercial real estate transactions in a sales capacity.
36+ DST Sponsor Companies.
65+ DST Offerings (these change weekly and at times may be fewer than 65)
36+ DST Sponsor Companies.
65+ DST Offerings (these change weekly and at times may be fewer than 65)
First, if you decide that you would like to complete a 1031 exchange you must engage the services of a
qualified intermediary (often referred to as an exchange accommodator). Second, the escrow
instructions of the property you are selling must specify that you are doing a 1031 exchange and name
the qualified intermediary that you selected to receive the sales proceeds, for your benefit. Note, if you
receive the proceeds of the sale, that is a violation of 1031 exchange rules and you will not be able to do
a 1031 exchange; however, we can still assist with capital gains tax mitigation. Third, after the sale of
your relinquished property is recorded you must identify replacement properties within 45 days and complete the purchase within 180 days (or less in
some cases).To defer all taxes the sale are rolled over into the new
property(ies), and the taxes are deferred until you decide to stop doing 1031 exchanges when your
properties or DSTs sell. Typically, the goal is to continuously defer taxes until the investor’s heirs
inherit the property(ies) at a stepped-up basis. Of course, tax laws are subject to change.
A 1031 exchange is a way of swapping real property, held for investment, for any other type of
investment property. If the time requirements and rules are adhered to you will be able to defer your
capital gains taxes, as the law is now written.
A Delaware Statutory Trust is a legal entity that allows multiple investors to co-own a specific property or a group of specific properties. Unlike most trusts, the ownership of beneficial
interests in a DST qualifies for 1031 exchange. This interpretation is due to Revenue Ruling 2004-86. DSTs
are commonly used in 1031 Exchanges to provide investors with a way to diversify their real estate investments without the responsibilities of direct property ownership.
Other Questions
In a 1031 exchange certain rules and guidelines must be adhered to in order to defer the capital gains
and recapture of deprecation taxes that would be incurred in a normal sale. While you are functionally
selling and then acquiring another property(ies), for tax purposes you are only exchanging the value of
one property for the value of one or more properties. The primary requirement is for there to be an
exchange accommodator, typically referred to as a qualified intermediary. The practical implication of
that requirement is that when you sell the property, for it to be an exchange, you do not take possession
of the sale proceeds, the proceeds of the sale are sent to this qualified intermediary for your benefit.
Then when you acquire the replacement property(ies) the executed purchase agreement is sent to the
qualified intermediary and that company purchases the properties with your funds. The 1031 exchange
rules are the same when purchasing properties in the DST structure as they are with any other
replacement properties. The difference being that you are obtaining percentage ownership in one or
more properties as opposed to 100% ownership. An investor sells their property in a 1031 Exchange DST
and uses the proceeds to acquire fractional ownership in one or more DST properties. This exchange
allows investors to defer capital gains taxes that a traditional property sale would otherwise trigger.
DST properties offer investors the possibility of achieving diversification, access to higher quality properties, and enjoying totally passive real estate investments that are professionally managed. DSTs are a popular choice for investors looking to fulfill the 1031 Exchange requirement of reinvesting in like-kind properties.
Any real property held for investment or business purposes, such as rental properties, commercial real estate, or land, can be exchanged for one or more properties in one or many DSTs.
The primary advantages of a 1031 Exchange include:
- Tax deferral.
- The ability to leverage real estate investments.
- The potential for portfolio diversification.
There are a few different ways for a person or an entity to qualify to be an accredited investor. For individuals, the most common ways to qualify are by net worth or income:
Have a net worth over $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person’s primary residence).
OR
Earned income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and a reasonable expectation of the same for the current year. For a complete definition click on the following link: Click the link to check the definition of Accredited Investor.
OR
Earned income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and a reasonable expectation of the same for the current year. For a complete definition click on the following link: Click the link to check the definition of Accredited Investor.
Yes, there are strict time limits that commence from the day your relinquished property sale is recorded. You must identify potential replacement properties within 45 days and you have an additional 135 days to complete the purchase of the identified properties, for a total of 180 days, or until your tax filing dealing, whichever comes first.
No, a 1031 Exchange is specifically for real estate. It does not apply to personal property or other non-real estate assets. Note this can be any kind of real property held for investment or business to any other kind of real property that is held for investment or business.
Like any investment, DST properties come with risks. These may include property-specific risks, market fluctuations, plus sponsor risk (the sponsor is the company that purchased the property and formed the DST that holds the property) and potential changes in tax laws.
Register on the investor portal to begin a 1031 Exchange or explore DST investments. Our team will guide you through the next steps.
Yes, combining a 1031 Exchange with other tax strategies is possible. Beacon 1031 does not provide tax advice, but we have relationships with tax professionals that can assist you with your specific circumstances and certainly we can provide you with questions to guide your discussion with a tax professional. We will can assist you with exploring how different options can be optimized for your financial situation.
Yes, the properties involved must be held for investment or used in a trade or business. Primary residences do not qualify; however, a primary residence can be converted into a rental property and then a 1031 exchange can be done within the restrictions of IRC1031.
Yes, partial 1031 Exchanges are possible, but the portion not reinvested will be subject to capital gains tax. There are two possible ways to end up doing a partial exchange. Either not all the proceeds of the sale of the relinquished property(ies) are used (equity boot) or you may complete your exchange with less debt on the replacement properties (mortgage boot) than you had on the property(ies) that you sold.
Yes, you may invest in multiple DSTs with the sale proceeds from one property you choose to defer taxes on while completing your 1031 Exchange. You may also invest in a combination of DSTs and those DSTs may have one property or a porƞolio of properties. In fact, many DST entities have more than one property. For example, if a DST consists of 20 properties your investment into the DST is an investment into each property held in that particular DST.
Yes, the IRS has rules about identifying replacement properties, including the "three-property rule", the "200% rule.", and the 95% rule. It is important to stick to these guidelines. For exchangers that would like to identify more than three properties they would utilize the 200% rule or the 95% rule. Contact us for details.
If you miss the identification deadline, your 1031 Exchange will fail, and you will be liable for capital gains taxes on the sale. Even if a DST is not your first choice it is always a good idea to have a backup identification. We have other options such as opportunity zone funds that may be able to defer most of your tax liabilities.
It is our job to guide you in the exchange process. Where we add value is in providing unbiased opinions of sponsors and the DSTs they offer. For any new sponsor we, or a member of our due diligence team, visit the properties and evaluate the risk factors. With smaller sponsors we take a more critical look. Sometimes we reject DSTs from sponsors we normally work with based on the dynamics of the individual property or portfolio of properties.
A 721 exchange is also a tax deferred exchange, in which an ownership interest in real estate is exchanged for a partnership interest, in the context of DSTs those partnerships are entities associated with a Real Estate Investment Trust (REIT). It is becoming more common for REITs to offer DSTs that are a conduit to the associated REIT. There are also traditional DST sponsors that have formed REITS for the purpose of potentially facilitating 721 exchanges. Importantly, any assets used in a 721 exchange will not be eligible for another 1031 exchange upon the sale of your units in the REIT. Contact us for a better understanding of the various
721 programs that are available.