Section 1031 of the Internal Revenue Code allows investors to defer capital gains taxes on the sale of investment real estate by reinvesting proceeds into a like-kind replacement property within specified time limits. Properly executed, a 1031 exchange allows investors to compound their returns without the drag of capital gains taxes — and with strategic planning, these deferrals can continue for a lifetime.
The Rules of a 1031 Exchange
The core requirements: the property must be held for investment or business use (not personal use), you must identify up to three replacement properties within 45 days of the sale, and you must close on the replacement property within 180 days. The exchange must be facilitated by a qualified intermediary — the seller cannot receive the proceeds directly, even for a moment.
The replacement property must be of equal or greater value, and you must reinvest all equity to defer 100% of the gain. Exchanging into a less expensive property or keeping cash creates a “boot” — the non-exchanged amount is taxable.
Delaware Statutory Trusts and 1031 Exchanges
One increasingly popular 1031 exchange strategy is the Delaware Statutory Trust (DST). A DST is a professionally managed, institutionally owned real estate entity that qualifies as like-kind property for 1031 exchange purposes. Investors can exchange out of a single property they’ve been managing themselves and into a DST that gives them fractional ownership of a larger, professionally managed portfolio — without landlord responsibilities.
RIYT can facilitate 1031 exchange transactions for qualifying investors transitioning out of appreciated real estate holdings. Contact our investor relations team to discuss your specific situation and timeline.