RENT Magazine Q1 '22

TWO GIFTS FOR THE PRICE OF ONE: HOW TO INVEST IN YOUR GRANDCHILDREN’S FUTURE AND ENJOY MORE TIME WITH THEM TODAY

Many people believe that the best thing about a Delaware Statutory Trust 1031 exchange is the relatively immediate benefits of deferring capital gains taxes. However, even experienced investors may not realize that the real brilliance of using a DST 1031 exchange is its ability to preserve wealth across generations while also helping investors create more free time to travel, learn new skills, or be with their friends and family. WHAT ARE THE RULES OF 1031 EXCHANGES AND

1031 Exchange Rule #1: The exchange must be set up before a sale occurs. KEY TAKEAWAY In order to defer capital gains, the taxpayer enters into an Exchange Agreement with a Qualified Intermediary (QI) for the sale of the property before it is transferred. The QI agrees to acquire the old investment property from the taxpayer, transfer the property to the new buyer, and acquire the replacement property for the taxpayer. In this manner, the investor never touches any money throughout the exchange and satisfies an important rule of 1031 exchanges.

1031 Exchange Rule #2: The exchange must be for like-kind property

HOW DOES A DST FIT IN? Before looking at how DST properties can help investors preserve wealth while also freeing up more quality time to enjoy life, each investor should be thoroughly familiar with the rules of 1031 exchanges and how Delaware Statutory Trusts fit in. Basically, the IRS insists that certain guidelines be followed:

KEY TAKEAWAY For many 1031 transactions (rental houses, farmland, office buildings, strip malls, etc.), the “like- kind” requirement does not mean selling and buying the exact same type of property. The term “like-kind” refers to the essence or character of the property rather than its grade or class. However, the property must be held for business or investment purposes.

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