In a recent article, we talked about three DST considerations for financial planners. Here, we’re going to outline a few more things to consider when dealing with DST wholesalers and syndicators.
Multiple Assets, Multiple States
It’s important to consider whether the DST has more than one asset and if those assets are in more than one state. When you own real estate in different states, that may require you to make a state tax filing for every state that the DST has an asset in. If there is a DST comprised of 12 different properties in 12 different states, that may require your CPA to charge you for filing a tax return in each of those 12 states.
Cash Reserves
Often, DSTs will have cash reserves set aside for operational expenses. If your 1031 exchange funds are side-tracked to fund those cash reserves rather than being redeployed into the real estate, that could trigger some gain. Taxpayers often want their exchange funds to be used exclusively to fund the purchase of the real estate (the DST) and they’ll fund out of their own pocket any amounts due for cash reserves so that their exchange funds are ear-marked specifically for the real estate purchase.
Planned Changes
Another thing to talk to your DST sponsor about is to see if there is any pre-arranged plans or designs to change the DST after you buy it. Will there be a cash-out refinance under which you could get back some of your equity? Will there be a conversion to an UPREIT before you’ve held that interest in the real estate for very long? If there are going to be any material changes like this, that’s something you want to know because that may change the defensibility of your real estate holding.
Get Your Exchange Started
If you’re ready to get your 1031 exchange started today, look no further than the team at CPEC1031, LLC! With over two decades of experience, our like-kind exchange professionals can guide you through the ins and outs of your 1031 exchange. Reach out to our qualified intermediaries today to learn more about our services and see if a 1031 exchange is right for you. Our office is located in Minneapolis, but we work with clients throughout the United States.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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