Video – Debt Offset When 1031 Exchanging into a DST

Do you have to worry about debt relief when you’re buying into a DST? Let’s say you paid off a mortgage on the sale of your traditional physical real estate – how do you factor in that ascension in wealth that you just enjoyed on the sale?

When you’re buying a DST (Delaware Statutory Trust), if that investment has debt already in the underlying assets that are inside of the DST, you as a purchaser of the beneficial interest in that DST are not only deemed to own the underlying real estate – you’re also allocated whatever apportionment of debt is fractioned off for your portion of the purchase.

So you can offset your debt relief from the sale of your relinquished property if you buy into a leveraged DST and you can be allotted enough debt as a part of that purchase. The problem is, with higher interest rates, more and more DST sponsors are doing low or no leverage, all-cash DSTs, which do not lend themselves well to taxpayers who are selling higher leveraged physical real estate. So there can be a mismatch in the ratio of debt that you may or may not be accorded as part of your purchase. This is where having a qualified intermediary, accountant, and financial planner comes into the equation.

Find a Qualified Intermediary Near You

Find a qualified intermediary near you who can help you navigate the 1031 exchange process efficiently and effectively. With over twenty years of experience, CPEC1031, LLC is your go-to resource for all things 1031 exchange. Contact us today to learn more about the process, our services, and the many benefits of the like-kind exchange.

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Who Do You Report to When Identifying a 1031 Exchange?

In a 1031 exchange, who do you report your identification and the details of your exchange to? Additionally, who makes sure that you’re hitting all your required benchmarks?

Typically, most people doing a 1031 exchange identify their properties to their qualified intermediary.

Who makes sure you are hitting all of the benchmarks and satisfying all the requirements of a 1031 exchange? Essentially that is the taxpayer’s responsibility. When you drive down the highway you have to stay in your lane to avoid hitting other cars. The same goes for 1031 exchanges. You need to know where those line markers are. There are members of your 1031 exchange team (your tax attorney, accountant, etc.) that can help ensure that you are staying within the bounds of these requirements.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Treasury Regulations: A Brief Overview of the 1031 Exchange Treasury Regulations

The Treasury Regulations that were written to govern the 1031 exchange industry set forth several safe harbors for facilitating delayed 1031 exchanges. Before these regulations were issued there were all kinds of crazy arrangements to create an exchange. The qualified intermediary modality has become the dominant 1031 safe harbor.

What is a qualified intermediary? Is it a person that can give you tax and legal advice? No. It needs to be a person that is unbeholden to the taxpayer conducting the exchange. Your agent, relative, attorney, accountant, etc. would all be excluded from becoming your qualified intermediary. Essentially, a qualified intermediary is a third party administrator who facilitates exchanges of real estate.

It takes a village to raise a 1031 exchange. You need to involve your entire team in the process. Your banker, accountant, real estate broker, title company, and qualified intermediary are all essential aspects of your 1031 team. This team will help you make the most informed decisions throughout your exchange.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Does the 180 Day Timeline Apply to a Reverse Exchange?

There are two ways to conduct a reverse 1031 exchange. Under the safe harbor in Rev. Proc. 2037, you’re capped at parking the property at 180 days. This is a very friendly safe harbor, under which you can manage construction, arrange for financing, advance the funds to the qualified intermediary, and more. The downside is it’s capped at 180 days.

What if you want to do a reverse construction exchange and you want to build the Taj Mahal of improvements. Can you get that done in 180 days? Probably not. In this scenario, you may want to enter into a parking arrangement that goes beyond 180 days – outside of the safe harbor.

There’s a notorious case called Estate of Bartell in which the parking arrangement was something like 17 months. A drug store operator was going to move their operation from an interior strip mall location to an external pad site location. They wanted to build brand new improvements to their exact specifications. The intermediary holding title really had no risk. The IRS attacked this non-safe harbor transaction because they said the intermediary’s entity didn’t have any risk – it was merely a facilitator. The tax court essentially said: “so what?”

Non-safe harbor exchanges do not have the same certainty of tax treatment as safe harbor exchanges. You need to think long and hard about whether or not you want to step outside of that safe harbor.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Video - An Important Note on 1031 Exchange Deadlines

Many people know that they have 45 days to identify their property in a 1031 exchange. But there is confusion about how that 45 day identification period interacts with the 180 day exchange period. Does the taxpayer have 180 days after the 45 day identification period?

The answer to that is no. You only have 180 days total from the start of your exchange to the finish. The 45 day identification period runs concurrently with that 180 period.

If your due date for the filing of your federal income tax return pops up within that 180 day period, the IRS shortens your exchange period to the due date of your tax return. So if you start your exchange on December 28, and you file on April 15, you’re not going to get the full 180 days to complete your exchange. The best course of action in this situation is to file an extension on your tax return. This is why it’s important to let all parties involved in your exchange the details at every step of the process.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved