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Delaware Statutory Trust Requirements

Delaware Statutory Trust Requirements 1031 Exchange 

When it comes to deferring your capital gains tax on the sale of your real estate investment asset, the first thing comes to mind is a 1031 exchange. The 1031 exchange is a great tool to defer your capital gains tax by exchanging like kind real estate to defer your capital gains tax. However, in this real estate market, prices are at all time highs, and real estate inventory is extremely low. Many rental property investors cannot find a replacement property in their allocated time. Many real estate investors are now discovering the Delaware Statutory Trust (DST). The Delaware Statutory Trust can help you achieve a successful 1031 exchange to defer your capital gains tax. For those who are still not yet familiar with a Delaware Statutory Trust, we will give you a quick overview. There are many Delaware Statutory Trust Requirements, and that is what we will be discussing today in this article. If you are new to a Delaware Statutory Trust, please fill out the form below or call our office directly - 805-583-2720 and we will help educate you on what a Delaware Statutory Trust is, and what the DST requirements are in your 1031 exchange. The 1031 exchange Delaware Statutory Trust simply is a securitized investment product of real estate that allow you to defer your capital gains tax by becoming a fractional owner of institutional grade real estate. The DST provides the owner passive monthly income without having to manage a property, as well as the ability to participate in the potential appreciation when the Delaware Statutory Trust properties are sold. When it comes to investing in a DST, there are some requirements that must be met. Lets go over these Delaware Statutory Trust Requirements for you! 

Requirements For A Delaware Statutory Trust Investment 

There are some stringent Delaware Statutory Trust Requirements that the IRS requires of you in order to successfully complete a 1031 exchange into a DST. Here are the bullet points of the Delaware Statutory Trust Requirements that must be met in order to successfully complete a 1031 exchange into a DST. 

  • Setup qualified intermediary account 
  • Identify replacement properties within 45 days
  • Replace any debt in a DST
  • Replace equity of relinquished property 
  • Must be an accredited investor  
  • Fill out required paperwork in 1031 exchange with a licensed rep
  • Tax reporting Id must match when completing an exchange 

We will touch on each of these Delaware Statutory Trust Requirement bullet points that must be met when executing a 1031 exchange. If any of these Delaware Statutory Trust Requirements are not met, could be subject to the capital gains tax. It is important that you follow these requirements as it could be costly from a tax standpoint. It is our goal to guide you through your entire 1031 exchange process to ensure you are able to successfully complete a 1031 exchange into a DST without any adverse tax consequences. 


Delaware Statutory Trust Requirements of setting up a qualified intermediary account

One of the most important Delaware Statutory Trust Requirements is to setup your qualified intermediary account BEFORE you close escrow. If you are not sure what a qualified intermediary is or what they do, we will give you a brief overview. The qualified intermediary is a Delaware Statutory Trust Requirement that is set in place in order to report your 1031 exchange transaction to the IRS. This ensures that you do not have a taxable event when deferring the sale of your relinquished property into a DST. The qualified intermediary acts like an escrow, where it hold the funds and send the funds to the appropriate DST portfolio and reports the transaction to the IRS. This is one of the most important Delaware Statutory Trust Requirements because if your qualified intermediary account is not setup prior to your close of escrow, you will not be eligible to do initiate a 1031 exchange. We have worked with countless qualified intermediaries on behalf of our clients. If you need a referral for a qualified intermediary, we would be happy to make an email introduction. 

 Identify DST Properties  Requirement in your 1031 exchange  

When you successfully close escrow on your investment property and setup your qualified intermediary account prior to close, you now have 45 days to identify your replacement properties. When it comes to the Delaware Statutory Trust Requirements of identifying your replacement properties with a DST, the process is quite simple. Some DST portfolios could have a single property, or 36 properties. These portfolios can offer great diversification, but you as the real estate investor might be concerned with the amount of properties that need to be identified. If you are going to utilize the benefits of a Delaware Statutory Trust, then most likely you will be utilizing the 200% rule in your 1031 exchange. This Delaware Statutory Trust Requirements allows you to identify up to 200% of the value of your relinquished property and identify as many properties as you wish. We work with all of our 1031 DST clients to easily supply them with the Delaware Statutory Trust Requirements of identifying each DST property and the fractional ownership to the qualified intermediary. We can also work directly with your qualified intermediary to make the Delaware Statutory Trust Requirements of identifying all of the properties with your QI.  

Replace Debt Delaware Statutory Trust Requirements LTV

If you sell an investment property that has a mortgage, the Delaware Statutory Trust Requirements stipulates that you must replace equal or greater amount of the debt from your relinquished property. For example, if you are selling a $1m property with a $500,000 mortgage, then you must find a DST with a 50% loan to value (LTV). The Delaware Statutory Trust Requirements states that you must purchase $500,000 of equity into a DST as well as $500,000 of debt in a DST for a total real estate purchase of $1m. These Delaware Statutory Trust Requirements must be met, or it is considered boot in your exchange. If there is debt that has not been replaced, the IRS considered this boot in your 1031 exchange, thus a taxable event. It is our job and responsibility to find a DST portfolio with a LTV to match your transaction in order to avoid a taxable event. We have access to many leveraged DST portfolios that will allow us to replace the debt in your exchange.

Purchase equity equal or greater Delaware Statutory Trust Requirements

The Delaware Statutory Trust Requirements of replacing equal or great amount of equity in your 1031 exchange or you are subject to the capital gains tax. If you do a traditional 1031 exchange, and purchase a property less than your relinquished property, there will be left over funds that need to be replaced, or it will be a taxable event. Many clients of ours do a traditional 1031 exchange and have boot left over in the exchange. Instead of taking the left over funds in cash, and having to pay the capital gains tax, they defer their capital gains tax utilizing the DST. The Delaware Statutory Trust Requirements of boot in your exchange can be a requirement of the DST company. Almost all Delaware Statutory Trust Requirements of the sponsor state a minimum investment amount of $100,000. Our staff can help you avoid a taxable event of booty in your transaction with the DST. 

Accredited Investor Delaware Statutory Trust Requirements

A DST is a sophisticated long term securitized investment product that is regulated by the SEC and FINRA. Since a DST is regulated by the SEC and FINRA there is a Delaware Statutory Trust Requirements that you must be an accredited investor. If you are not sure what the definition of an accredited investor is, it is someone who has a net worth of $1m excluding your primary residence. You can also be an accredited investor if you have income of $200,000 for the past 2 years if you are single, or $300,000 filing married. The Delaware Statutory Trust Requirements of being an accredited investor states that we cannot send you an PPM's or invest your proceeds into a DST unless vetted that you are an accredited investor with supporting documents.

Delaware Statutory Trust Paperwork Requirements With Licensed Advisor

When it comes to investing in a DST, there is a lot of paperwork. If you want to invest into a DST to defer your capital gains tax, the Delaware Statutory Trust Requirements state that you must go through a series 7 licensed advisor. You cannot go directly to a DST company and invest directly with the sponsor. The Delaware Statutory Trust Requirements will refer you to a series 7 licensed advisor. There is a lot of paperwork for the compliance department that must be prepared. Our team will prepare all the Delaware Statutory Trust Required paperwork to be summited to the SEC and FINRA. 

Tax Reporting Delaware Statutory Trust Requirements

In order to do a successful 1031 exchange and defer your capital gains tax, you must report the same federal tax ID that you report your investment property on your tax return. These Delaware Statutory Trust Requirements ensure that you are reporting to the IRS that you are selling an investment property, yet deferring the capital gains tax into a DST investment property. In order for the IRS not to hit you with the capital gains tax, the reporting tax ID must match when investing into a DST. There are some Delaware Statutory Trust Requirements that allow you to change the tax reporting ID after 2 years if you wish. 

Delaware Statutory Trust Requirements Are Hard - We Make Them Easy!

These Delaware Statutory Trust Requirements can be hard to abide by. There are many Delaware Statutory Trust Requirements, and our team knows all of these rules in order to successfully defer the capita gains tax with a DST in your 1031 exchange. The last thing we want is for one of our clients to get a surprise tax bill after doing a 1031 exchange. Our team thoroughly reviews your transaction in order to fully understand all of the Delaware Statutory Trust Requirements that we need to meet so you do not have a taxable event. The WInthco team has been helping clients defer their capital gains tax with the DST for almost 5 years. We take pride in helping our clients defer huge amount of capital gains tax with the use of the DST. If you have more questions about the Delaware Statutory Trust Requirements after reading this article, please reach out to us directly by filling out the form below, ore calling our office directly at 805-583-2720.


*Disclosure:

This website is neither an offer to sell nor a solicitation of an offer to buy any security which can be made only by a prospectus, or offering memorandum, which has been filed or registered with appropriate state and federal regulatory agencies, and sold only by broker dealers and registered investment advisors authorized to do so.

Additionally, we cannot offer any of our open offerings unless we have a pre-existing relationship with a customer.  Once we have obtained sufficient information to perform an evaluation of our new customers’ financial circumstances and sophistication in determining his or her status as an accredited investor, we would be able to discuss future offerings once they become available.

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