1031 Tax Deferred Exchanges

What is a 1031 Tax-deferred Exchange?

When you sell appreciated investment Real Estate and "Exchange" into "Replacement Property" that allows you to defer capital gains on selling the first property. A correctly done Exchange also defers recapture of previously taken depreciation.

In an Exchange, the funds from selling the "relinquished" property must flow directly to a Qualified Intermediary (similar to escrow).
Exchangers have 45 days to identify property to buy
The purchase must be completed in 180 days

Strict timelines and rules must be followed to qualify for a 1031 Exchange!

Using a highly specialized 1031 professional is highly recommended. Call Us at 617-266-9700

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Possible Benefits Of a 1031 Exchange

Defer immediate Capital Gains Tax on property sale proceeds
Prevent your past depreciation from being recaptured upon your sale
Exchange into "investment grade", "net income property
Funds formerly lost to taxation remain with you, the taxpayer (earning potential returns
Heirs may receive a favorable step-up basis
The sponsor usually pays Closing Costs, not the investor

1031 Overview

Replacement Property must be "like-kind"
The Replacement Property must be of equal or greater value
than the Relinquished Property
Protection from depreciation recapture tax
Purchase multiple properties possible
Different types of properties are allowed (must retain investment status)
Indefinite protection from tax through subsequent exchanges

Securitization and DSTs : Their relationship to 1031 exchanges

One term frequently mentioned in 1031 Exchanges is DST. A Delaware Statutory Trust (DST) is a Real Estate Investment Security. It is a trust created to meet the Tax 1031 "Replacement Property" requirements set forth by the IRS. Those interested in using this investment product in their 1031 Exchanges must note that DST rules are inflexible, just as the timelines for completing an Exchange are strict.

Possible benefits for the DST structure to a 1031 Exchanger are access to larger, "institutional" style properties that should include rigorous due diligence. In other words, when an investor receives the private placement memorandum for a DST, listed inside this document are all the risk factors for the investment—giving the investor and their advisor(s) the ability to decide if the DST fits their portfolio or investment goals.

Since DSTs are securities, this offers investors percentage ownership in higher quality properties than might otherwise be possible. Possible benefits to an investor are customization of the size of their investments and diversification into several DSTs through one 1031 exchange. Typical properties are large Class A Apartment Communities, NNN Retail Centers, Grocery Plazas and other large, stable, properties.

As always, reviewing ALL information on any investment, including its possible benefits and risks, is very important. One must understand its impact on an individual portfolio before proceeding with a purchase of any offering.

Other Key Things to Know as an Exchanger...

Due Diligence

It analyzes all factors that affect a property's value or future value. Proper due diligence will analyze such factors as Zoning compliance, Environmental hazards, Area incomes, and demographics. A knowledgeable analysis of the PPM is essential in understanding the actual value of investment property.

What is a PPM?

Securitized properties provide investors with a Private Placement Memorandum (PPM).

PPMs provide investors with comprehensive information and disclosures that are much more extensive than typical real estate offerings. Disclosing material facts on the property is required. Property Sponsors must disclose known adverse material facts. Third-party due diligence is required on 1031 Replacement Property Offerings offered through Sourcenet Investment Services, LLC.

Selling Securities

Securitization means the properties offered to investors as a security by
Registered Representatives are under the jurisdiction of FINRA and The SEC. Properly adhering to SEC and FINRA requirements, any representative selling a security should be properly registered to do so

DST 1031 properties are only available to accredited investors

DST 1031 properties are only available to accredited investors (typically those with a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. If you are still determining if you are an accredited investor or an accredited entity, please verify with your CPA and Attorney.

Since 1981, real estate investors have looked to us for knowledgeable advice and quality real estate investments

1031 Services We Provide

A nationally known real estate adviser to working for you
Net Income and Multi-Family Properties
Property diversification
Financial counseling
Expert supervision of the exchange process
Non-Recourse debt (available on some offerings)
Multiple properties within a single exchange
A sophisticated Adviser with an extensive background in Real Estate

Using a 1031 Exchange may be one of the best moves a property owner could make. Partnering with Sourcenet 1031 can make your sound decision even better.

Section 1031 Exchange real estate investments have risks. Investors should remember that there are always risks involved in real estate investing. The securitization process disclosure does not certify quality or investment worthiness or that risks are removed. The 1031 Exchange process does not remove those risks.

Real estate investment risks include rent loss, area degradation, under-insured casualty loss, building obsolescence, area competition from new developments, loss of capital, loss liability, and many other factors.

Investors should also consult their tax professional advisors and consider all risks before investing. Real estate investors may lose their investment. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. This is not to be interpreted as tax or legal advice.