Delaware Statutory Trusts - What To Do and What Not To Do
You have decided to do a 1031 exchange and sell your property, invest that money into another property in order to defer the federal capital gains tax, state capital gains tax, and depreciation recapture tax, but are you aware of some of the very important points when considering aDST exchange?
DO keep in mind these three basic rules to qualify for complete tax deferral:
Receive only like-kind replacement property
Use all the proceeds from the relinquished property for purchasing the replacement property
Make sure the debt on the replacement property is equal to or greater than the debt on the relinquished property. (Exception may be a reduction in debt can be offset with additional cash; however, a reduction in equity cannot be offset by increasing debt)
DO attempt to sell before you purchase. Sometimes exchangers find the ideal replacement property before a buyer is found for the relinquished property. If this situation occurs, a reverse exchange (buying before selling) may be needed.
DO strategic planning for the exchange. Be sure to consult with your CPA, financial professional, lender and Qualified Intermediary before exchanging and possibly investing in a DST.
DO NOT dissolve partnerships or change the manner of holding title during the exchange. A change in the Exchanger’s legal relationship with the property may damaging to the exchange.
DO NOT miss your deadlines for exchanges and identification. Failure to identify within the 45-day identification period or failure to acquire replacement property within the 180-day exchange period will disqualify the entire exchange resulting in the sales of the specific property being full taxable.
DO NOT attempt to complete a 1031 exchange using your attorney or CPA to hold title or funds. IRS regulation requires a Qualified Intermediary to properly complete an exchange.
Before you step in the direction of using a Delaware Statutory Trust, schedule your no-obligation meeting or call our office at (704) 450-8352. You can also contact us by email at Douglas@PlanWithAWS.com.
