Not Getting A Replacement Property? A TIC or DST Investment Can Help!

A 1031 exchange process requires you to identify a replacement property within 45 days after the sale of your investment property. You must locate a like-kind property and send written identification of the property to the IRS within 45 days. If you have a 1031 properties list in hand, things can get simple and easy for you. However, in case you don’t, you need to put some extra effort. While hunting for a replacement property, you must keep the following factors in mind. First, the replacement property must be equal or greater in value than the relinquished property. Second, the replacement and replacement property must be like-kind. Third, both the relinquished and replacement property must have the same debt. You can qualify for a 1031 exchange only if you fulfill all these requirements.

Look for alternatives if you’re stuck in your identification.

Not one, but many investors get stuck during their 1031 identification. Either they could not find an ideal property, or if they do, they fail to arrive at a mutual agreement with the seller. If any of these things are happening with you, it’s time you should look for an alternative like a DST or TIC.

A TIC or Tenancy-In-Common is an investment strategy that lets you co-own investment properties along with other investors. Whereas, a Delaware Statutory Trust or DST is a private trust that owns, manages, and operates investment properties. The concept of creating business trusts, particularly those that involved the holding of real property or assets, dates back as early as 16th century English Common Law.

The Delaware Statutory Act was formed on the premise of trust law. It recognizes statutory trusts as autonomous bodies, separate from their trustee(s), providing relief from the corporate law structure.

Unlike a DST, a TIC is not managed by a trust. Instead, the co-owners of the property are usually responsible for maintaining the property. A DST can have up to a hundred investors or more. However, the number of investors is limited to 35 in TICs.

As per the tradition of trust law, the trustee(s) can structure their entity in a way that is most beneficial to the relationship of all parties and their expertise. Plus, it also offers liability protection similar to that of a limited liability company or partnership.

A Delaware Statutory Trust is akin to a unit investment trust or a fixed investment trust. The trust acquires and manages assets such as securities, real estate, etc. Investors can purchase interests in the trust and become beneficiaries of the trust’s assets. Since DSTs aren’t taxable entities, all the profits, losses, etc. are passed directly to the beneficiaries.

DSTs create an opportunity for investors to acquire interests in certain assets without the burden of holding the title or managing those assets. To ensure that a 1031 exchange gets completed, IRS Revenue Ruling 2004-86 established a way that qualifies eligible DST investments as 1031 exchange replacement property.

No matter whether you choose to go with a DST or TIC investment, you must speak to your advisor in advance. Plus, look out for a property list – a 1031 DST properties list or a 1031 TIC properties list. As mentioned in the beginning, having a property list makes your job easier.



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Disclaimer is a web portal owned by Investment.Net, LLC. The company is functioning in the 1031 exchange market for more than 15 years. Neither Investment.Net nor 1031Property intend to act as a broker or sell any goods or services. 1031Sponsors does not offer legal or tax advice. Tax topics discussed are for educational purposes only and should not be considered professional tax advice. It's recommended that you discuss your situation with your tax or legal advisor. Distributing an investment in different assets or choosing alternative investments involves higher risks than traditional investments and shouldn't be taken for granted. All alternative investment strategies are sold along with a prospectus that discloses all risks, fees, and expenses. These investments are not tax-efficient, and an investor should consult with his/her tax advisor before investing. The investor should be prepared to bear loss knowing that financial risks are attached to such investments.

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