1031 Exchange to a DST Basis Calculation

6 Replies

I have some unimproved land North of metro Atlanta under contract again.

This is planned to be a 1031 cash sale. I bought this property in 1968 so the basis is about 1% of the cash out. I had a mortgage way way back but paid off many years ago. Since it is unimproved land, there is no depreciation.

If I buy a Student Housing or Apartment DST with a 50% L/V for $200K, and they have say 20% land and 80% improvement.

I understand my $200k cash buys another $200k of property value via the loan. The $400k of Investment now shares $80k of Land and $320k improvements.

So the Basis of this $200k investment portion is only $20k with $180k gain to be delayed in the exchange. So the reduction in Basis of the new property is $180k.

Sales expenses are none on the sale and I assume none on the purchase of the replaced property in the DST?

So the Basis of the replacement DST improved property is $320-180 = $140k. The land value of the DST share is still $80k so the total Basis of the replacement property is $140k + $80k = $220k.   Correct?

I understand the DST will issue and end-of-the-year statement of our share's Income, repair expenses, and yearly depreciation.  On my new Schedule E I set up a new depreciation schedule reducing the Basis calculated above by the proportion of depreciation given by the DST.

Help please.  Having a hard time understanding how to report correctly to the IRS.

The broker you're working with to buy into the DST should be able to offer guidance on this

Additionally, I would consult with a CPA- you're going to need accurate continuously tracked basis going forward as you will likely have to do another 1031 into another DST at some point- most aren't held incredibly long term.

Thanks @Natalie Kolodij ,

My broker @Leslie Pappas , was able to get me same help. Actually it is fairly simple since the relinquished property in undeveloped, it has no prior depreciation or schedule. So the only carry over into the new DST Property is the 99% gain being carried over.

Since the DST has a L/V of 50-60% and most have a low land to improvement percentage you wind up with a good portion of fresh depreciable property with the 1031 exchange from unimproved property into the DST. Perhaps @Brandon Hall can comment as well?

I understand you currently have a simple calculation 

My point was just that your next 1031 with the accumulated depreciation from this DST will require a slightly more complex calculation- so it may benefit to begin working with a CPA now if you will stay in DSTs long term.

Thanks. I have consulted with one local CPA and plan to look around town for one more familiar with DST's and 1031 exchanges. I really want to find one that can support me in my use of Turbo Tax and not have to convert to their professional software. Please see my thread in the Tax and Legal Blog. Yea I'm a bit anal, but I like to do the "what if's" on Turbo Tax.