1031 Like-Kind

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Exchange

What is a 1031 Like-Kind Exchange?

Under Internal Revenue Code Section 1031, you can defer capital gains taxes by reinvesting the proceeds from the sale of an investment property into a similar, or “like-kind,” property. Eligible investment properties include rental properties, apartment buildings, farmland, hotels and business properties. This strategy allows you to preserve your capital and continue building wealth without an immediate capital gains tax burden.

Key Qualifications for a 1031 Exchange:

• Property Type: The new property must be of similar nature and character to the old property and located within the United States.
• Value: The new property must have a value equal to or greater than the old property to maximize benefits and avoid capital gains taxes.
• Timeline: Identify the new property within 45 days of selling the original property and complete the replacement purchase within 180 days.
• Qualified Intermediary: The proceeds from the sale must be held in escrow by a third-party Qualified Intermediary (QI) to ensure compliance with IRS regulations.

Expert Guidance for a Seamless Exchange

Given the complexity and strict requirements of a 1031 exchange, it is crucial to work with experienced financial advisors, tax professionals, and a qualified intermediary to ensure compliance and avoid costly errors.

Transitioning from Active Property Management

If managing real estate has become burdensome, or if you wish to simplify your estate for your heirs, consider transitioning your property ownership through a diversified real estate strategy with Raymond James Alternative Investments.

Step-by-Step Process:

1. Initial 1031 Exchange: Sell your property through a 1031 exchange into a Delaware Statutory Trust (DST), facilitated by a Qualified Intermediary.
2. Delaware Statutory Trust (DST): Enjoy passive income from the DST for 24-36 months, qualifying as “like-kind” property from the 1031 exchange.
3. 721 Exchange – UPREIT Transaction: Convert your DST interest into shares of a Real Estate Investment Trust (REIT) without triggering a taxable event.
4. Real Estate Investment Trust (REIT): Gain ownership in a professionally managed, diversified REIT, providing income and growth potential without the responsibilities of direct property management.

Leaving a Legacy

Passing a REIT to your heirs offers a streamlined and equitable way to transfer wealth, potentially allowing for multi-generational deferral of capital gains taxes.

Next Steps

This exclusive service is available to Raymond James clients and prospective clients with over $2.5 million in investable assets, excluding real estate holdings. If you meet this criterion and are interested in our 1031/721 diversified real estate offering, please contact us to learn more.

Source: “Like-kind exchanges – Real estate tax tips” IRS.gov.

Downloadable Brochures:

• Alternative investment strategies: private real estate
• Alternative Opportunities for your Financial Plan

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.

The process outlined above is provided for illustrative purposes only and is a high-level overview of how a 1031/721 exchange process works. There is no guarantee that the Operating Partnership will exercise the Fair Market Value Option.

There is no guarantee that the investment objectives will be achieved. The REIT shares may have limited liquidity and may become illiquid. There is no guarantee that the Operating Partnership will exercise the FMV option.

Every investor's situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James Financial Services, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Real Estate Investment Trusts (REITs) are financial vehicles that pool investors’ capital to purchase or finance real estate. REITs may concentrate their investments in specific geographic areas or in specific property types, i.e., hotels, shopping malls, residential complexes and office buildings. The value of the REITs and the ability of the REITs to distribute income may be adversely affected by several factors, including rising interest rates, changes in the national, state and local economic climate and real-estate conditions, perceptions of prospective tenants of the safety, convenience and attractiveness of the properties, the ability of the owner to provide adequate management, maintenance and insurance, the cost of complying with the Americans with Disabilities Act, increased competition from new properties, the impact of present or future environmental legislation and compliance with environmental laws, changes in real estate taxes and other operating expenses, adverse changes in governmental rule and fiscal policies, adverse changes in zoning laws, and other factors beyond the control of the issuers of the REITs.

REITs involve risks such as refinancing, economic conditions in the real estate industry, changes in property values and dependency on real estate management.