DSTs can be complicated. In this article, we are going to talk about three things financial planners should consider when approaching DSTs.
Leverage
One important thing to consider is whether or not there is leverage on the replacement investments and is that debt allocable to the co-purchasers in the DST? Some DSTs are 50% levered – the underlying assets already have debt on them up to 50%. So when you put a dollar into that DST and you’ve allocated the 50% leverage, your real buying power is 2 dollars for every dollar that you put in. That’s going to be important when you’re determining your ceiling under the 200% rule because the value of what you’re buying isn’t just the equity that you’re putting in, but also the debt that’s allocable to you. Be aware that if you’re buying a leveraged DST, that DST may take up more bandwidth under the 200% rule than you had anticipated.
Tax Documents
The next thing to think about is what kind of tax document the DST sponsor is going to send you for completing your taxes. You may receive an alternative 1099 while you’re in the DST stage. If that DST then later converts under a 721 contribution to an UPREIT, you may eventually receive a K-1. So talk to the DST sponsor and understand what tax documents you’ll be receiving.
Identification
Another thing we need to discuss is identification. You still need to identify the underlying real estate that’s comprised of this DST. You want to ask the DST sponsor if they can provide you with the address, legal description, county tax assessor’s numbers, etc. You want to be able to clearly and unambiguously describe that real estate and it would be wonderful if the sponsor could simply provide you an exhibit that gives the full description of the underlying assets. You can append that to you identification form to fully identify what you’re getting as part of the DST.
1031 Exchange Company
The 1031 exchange professionals at CPEC1031, LLC have been working with taxpayers on their like-kind property exchanges for more than twenty years. Our team has the resources and skills needed to make sure your exchange is a success. We can walk you through the process step by step and ensure all of your questions are answered as they arise. Contact us today to learn more about our services. You can find us at our downtown Minneapolis offices. Be aware that we provide 1031 exchange services to taxpayers throughout the United States.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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