Managing and investing in property can be an excellent source of diversification for investors in their portfolios. The real estate industry offers an attractive way to make use of one’s money to generate profit. Delaware Statutory Trust (DST) and 1031 Exchange are two crucial terminologies in real estate that are often used interchangeably. But DSTs and 1031 Exchanges are not the same. In this blog post, we explore the basics of 1031 exchange advisors near me, their differences, and how they work.
What is a Delaware Statutory Trust (DST)?
A DST is a separate legal entity created under Delaware law. It is commonly used when more than one investor comes together to purchase larger properties. It allows investors to pool their funds to buy a more valuable property that they couldn’t otherwise afford alone. DST investors get fractional ownership in the property. Typically, a trustee is appointed to manage and operate the property. This way, DST investors are relieved of active management responsibilities. The trustee is responsible for managing, operating, and maintaining the property, collecting rent, and handling any necessary paperwork.
What is a 1031 Exchange?
A 1031 Exchange allows property owners to defer capital gains tax on the sale of their investment property by exchanging it for a like-kind property that has an equal or greater value. The 1031 tax-deferred exchange applies to capital gains taxes and net investment income tax (NIIT). Property owners can also exchange one property for multiple properties simultaneously in a 1031 exchange. Though 1031 exchanges are a great way to defer taxes, there are specific rules and restrictions that must be followed.
Differences Between DST and 1031 Exchange:
DSTs and 1031 Exchanges are two distinct terms that often overlap. The major difference between DSTs and 1031 Exchanges is their purpose. DSTs are established to invest in various types of real estate investments, whereas 1031 Exchanges are tax strategies to defer capital gains. DSTs are regulated while 1031 Exchanges are tax code-based guidelines. DSTs are owned by multiple investors while 1031 Exchanges are owned by an individual investor.
Benefits of DST and 1031 Exchange:
The primary benefits of DST are passive ownership, reduced liability, diversification, and the potential to participate in larger-scale real estate investments. On the other hand, the main advantage of 1031 exchanges is the ability to defer capital gains tax, allowing investors to leverage funds for further investment. DSTs and 1031 Exchanges can be used together effectively, allowing investors to defer taxes while investing in passive, diverse investment options.
Conclusion:
In conclusion, Delaware Statutory Trust and 1031 Exchanges are two crucial concepts for real estate investors to understand to optimize their investment plans. DSTs are investment arrangements that allow investors to pool their funds to invest in more significant properties without an active role in property management. A 1031 Exchange, on the other hand, is an effective way of deferring taxes for investment growth opportunities. Both DSTs and 1031 Exchanges have their unique advantages and differences. Even though these two concepts should be carefully considered and applied, they remain compelling investment options for real estate investors.
