Is it possible to 1031 exchange into a DST that I am the trustee?

Question

I am in the process of setting up a DST where I will be the trustee and beneficiary and I also have an investment property that is in my name I want to sell. I was planning to go the usual route of a 1031 exchange where I identify a property within 45 days and close in 180 days.

But I came across articles where people 1031 exchanged into a DST. The DST is treated like real estate so it satisfies the like-kind rule.

That got me thinking, can I sell my property and move the money into my DST? It seems it should be possible. Has anyone done it? How did you do it and what is the downside?

Chris Mills · Answer

Hi @Unai La Salle,

I double checked with some phone calls this morning and they confirmed it is possible, though very complicated. The DST is simply a "wrapper", for your investment vehicles. This raises a number of questions in my mind though. DSTs are probably the most expensive and cumbersome way I know of to accomplish your 1031 Exchange when it's you setting up your own (versus investing in a pre-existing one). There's a lot of rules the DST has to follow, which is part of how it gets its blessing from the IRS. Typically, a firm will set up a DST when they intend to have hundreds of 1031 and cash investors funding the deal.

I'm assuming you're looking into a new structure because you're bringing in others on your deal? If you only have a handful of investors for your next deal, a TIC would be a far simpler and more cost effective way to go. The main drawback to that would be that all of you would have to be like minded, because you all have to agree on every little decision.

I may be able to be a bit more helpful if you would like to chat offline a bit more. It would help to know the full picture and what your intentions are, and the circumstances that led you believe you needed a specialized entity. Otherwise, I hope I was able to shed some light on the issue here. Best of luck.

Dave Foster · Answer

@Unai La Salle, The use of the DST as a holding vehicle for an individual is a relatively new phenomena. I'd be interested what some of our attorney friends would say. The issue isn't "like kind". But my gut tells me it would be same as a single member LLC - you are selling a property and are then wanting to "buy" membership from yourself (even though the DST has it's own EIN etc.). Not sure that would fly. And in any event it's going to create a taxable event for the DST anyway.

Is it possible to 1031 exchange into a DST that I am the trustee?

2 Replies