All Forum Posts by: Jon Taylor

That’s a great question — and it’s one that comes up often. The key principle in a 1031 exchange is maintaining the same taxpayer throughout the transaction. If the relinquished property was owned by you and your wife as individuals, the replacement property typically needs to be acquired by the same taxpayer(s).

An LLC that's disregarded for tax purposes (for example, a husband-and-wife LLC in a community property state that's treated as a single entity) may qualify as the same taxpayer — but the specifics depend on your state, how the LLC is structured, and how it's taxed.

It’s definitely feasible, but I’d recommend confirming with your qualified intermediary before you close on the replacement property.

Yes, your parents can do a 1031 exchange into another rental and rent it to you, as long as it's treated like a real investment property. That means you must pay fair market rent, have a formal lease, and they should hold the property as a rental for at least a couple of years. Working with a CPA and qualified intermediary is important to make sure everything stays compliant.

@David Delahanty -

One clarification to reframe your question.

A 721 exchange allows real estate investors to contribute property into a real estate investment trust (REIT) in exchange for operating partnership (OP) units, deferring capital gains taxes. This often follows a 1031 exchange, where the investor first trades into a Delaware Statutory Trust (DST), which is then contributed to the REIT under Section 721 of the tax code.

There are 8 public REITs that have mature 1031-721 strategies, and a fiduciary due diligence obligation requires deep financial analysis of each REIT.

I’ll refer you to this post to learn more >

https://www.biggerpockets.com/topics/1217983

Sharon,

The amount of gain and potential tax liability will largely determine the best path forward. There are creative ways to replace your existing loan.

As @Payton Haight noted, the DSCR option could help you qualify without the income. Another option could be to borrow the $154K against another asset—such as your primary residence—and bring cash into the exchange to cover the debt.

You might also explore a structured investment like a Delaware Statutory Trust (DST), provided you're working with an advisor or registered representative who has access to that market and determines it's suitable for your financial situation.

Ultimately, it starts with a clear understanding of your tax liability. If your goal is to protect and grow your real estate portfolio, walking away from the 1031 option could set you back years.

I know that market!

Happy to talk about what’s working for us.

DM me if you’d like to chat

@Brett Henricks No, a Delaware Statutory Trust (DST) cannot make capital calls. Once investors contribute funds, no additional investments are allowed.

No. Your depreciation recapture is only a 5% premium to your federal rate (15 or 20%) on what has been depreciated. 

If you’d like, I have an excel model I can share with you if you submit your info.

https://forms.gle/6cFJiuvCWstMnESZ9

@Michael Dahl - @Steve Wolterman said it well. An alternative option is to refinance before you sell. Generally, it's wise to let the loan "season" for 12 months and ensure it’s used for investment purposes. However, the cash you receive from refinancing is not taxable.

You’re right, @Dave Foster, I generally prefer to see DSTs used as standalone real estate investments with a 1031 exchange option on the backend. This allows investors, after the typical 3-5 year operating period, to either pivot back into sole ownership properties or exchange into the best DST available at that time.

In most cases, sponsors make this exit optionality explicit in the PPM. It’s quite rare for an optional 721 program to become a forced conversion.

@Steve Schaeffer, your RIA or BD’s investor relations team has been in contact with the sponsor quite regularly if this transaction is in process. They should have all of the program-specific information available for you.

If you’d like me to look into it directly, feel free to DM me.

Interesting, that does not sound good. They will likely request a copy of your most recent form 4562 and schedule E depreciation supplement and handle your individual depreciation schedule in the K-1 for the OP units.