1031 Exchange & DST
A 1031 exchange may defer gain on the sale of investment real estate when proceeds are reinvested under strict timelines. A Delaware Statutory Trust can serve as replacement property when a direct purchase isn't practical.
At a glance
- Category
- Real Estate
- May be relevant for
- Investors selling appreciated property
- Our approach
- Document review → proposal → implementation
- Service area
- Nationwide (office in Westlake Village, CA)
Whether this applies to you depends on your specific facts and circumstances.
Ask a CPA about your situationImportant: This page is for educational purposes only. It describes how this strategy may work under current law. Whether it is appropriate for you, and how to implement it correctly, depends entirely on your specific facts, timing, and documentation. This is not individualized tax advice. Speak with a licensed CPA before acting.
How it may work
1031 Exchange & DST — a plain-English overview
The sections below describe how this strategy works under current tax law, what conditions may make it applicable, and what factors affect the outcome.
What §1031 provides
Under §1031, gain on the sale of investment or business real property may be deferred — not eliminated — when the property is exchanged for 'like-kind' replacement property. 'Like-kind' is broadly defined for real estate: any investment real property for any other investment real property. However, 'like-kind' no longer extends to personal property after the Tax Cuts and Jobs Act, and the property must be held for investment or use in a trade or business — not primarily for sale.
The timeline is strict and non-negotiable
The exchanger must identify replacement property within 45 days of the sale closing date and must close on the replacement property within 180 days (or the due date of the tax return for that year, if earlier). These deadlines cannot be extended except under very limited IRS relief provisions (disaster declarations). A qualified intermediary must hold the proceeds during the exchange — proceeds cannot be constructively received by the exchanger without breaking the exchange. Missing either deadline means the deferred gain becomes immediately taxable.
Delaware Statutory Trusts (DSTs) as replacement property
When a direct replacement property is not available within the 45-day identification window — or when the exchanger wants passive ownership rather than active management — a Delaware Statutory Trust may serve as qualified replacement property in a 1031 exchange. A DST is a passive ownership structure in which investors hold fractional interests in institutional-grade real estate managed by a professional sponsor. It satisfies the like-kind requirement. DST investments are securities and are subject to suitability review; they are evaluated through Total Wealth Services, the affiliated RIA.
Depreciation recapture and the stepped-up basis on death
A 1031 exchange defers — but does not eliminate — capital gain and depreciation recapture. The deferred gain carries forward in the basis of the replacement property. If the replacement property is later sold without another exchange, all deferred gain and recapture becomes taxable. However, property held until death receives a stepped-up basis under current law, effectively eliminating the deferred gain. The combination of 1031 exchange and step-up at death is a planning approach for those with long-hold intent.
Document-first
What we'd review before recommending this strategy
We do not guess. We review the documents, propose, and implement. Here is what we'd want to see to evaluate whether this strategy may apply to you.
- Realized gain and depreciation recapture exposure on the property being sold
- Timeline feasibility — 45-day and 180-day analysis for the anticipated sale date
- Equity and debt requirements on replacement property — debt relief triggers gain
- Identification strategy — multiple-property identification rules and fallback options
- DST suitability — if a DST is being considered, coordinated through Total Wealth Services
- Long-term exit strategy — whether continued exchanges, installment sale, or hold-to-death planning makes sense
Who this may fit
Profiles where this strategy comes up most
These are the client situations where we most commonly evaluate this strategy. Whether it applies to you depends on your specific facts.
Common Questions
Questions about 1031 Exchange & DST
Educational answers to questions we often hear when discussing this strategy with clients.
Can a primary residence qualify for a 1031 exchange?
No. §1031 applies only to property held for investment or use in a productive trade or business. A primary residence does not qualify. However, §121 provides a separate exclusion for gain on the sale of a primary residence (up to $250,000 single / $500,000 married, subject to ownership and use tests), and there are planning approaches for mixed-use properties.
What is 'boot' in a 1031 exchange?
Boot is any non-like-kind consideration received in the exchange — cash, debt relief, or personal property. Boot is taxable in the year of exchange to the extent of gain realized. For a fully tax-deferred exchange, the exchanger must reinvest all equity and replace all debt (or substitute cash to make up the difference).
Educational content only
This page describes 1031 Exchange & DST for general educational purposes under current tax law. It is not individualized tax, legal, or investment advice. Whether this strategy is appropriate for you — and how it should be structured, documented, and reported — depends entirely on your specific facts, timing, and circumstances. Tax law changes frequently. Always consult a licensed CPA before acting on any information here.
We do not guess. We review the documents, propose, and implement.
Ask a CPA
Wondering if 1031 Exchange & DST applies to you?
Tell us about your situation and we'll follow up within one business day. We review the actual documents and give you a direct answer — no obligation.
- Document-first review — we start with your actual returns and records
- Clear explanation of what may apply and why
- No obligation — honest if there isn't enough value to act on
Explore more
Other Real Estate strategies
Ready to find out what applies to your situation?
A discovery call is how we start. We review the documents and tell you honestly what may be worth pursuing.