WHAT INVESTORS NEED TO KNOW

 

A 1031 Exchange (named after Section 1031 of the Internal Revenue Code) is a powerful tax-deferral strategy that allows an investor to sell certain investment or business real estate assets and then reinvest the proceeds into another "like-kind" qualifying property while postponing, potentially indefinitely, the capital gains tax consequences.

To qualify, properties must be for investment or business use (not personal residences), and strict IRS rules apply—including engaging a Qualified Intermediary prior to property sale, meeting like-kind requirements, debt-level replacement, and adherence to strict timelines.

A Qualified Intermediary (QI), also known as an exchange facilitator or accommodator, is an independent third party that facilitates a tax-deferred 1031 exchange under Section 1031 of the Internal Revenue Code.

A DST (Delaware Statutory Trust) is a legal ownership structure that allows multiple investors to own fractional interests in large real estate assets such as apartment communities, industrial facilities, medical offices, self-storage properties, or distribution centers. Debt, if any, in a DST is non-recourse to the underlying investor, which represents an important advantage over the older Tenants-In-Common (TIC) structure.

In the context of a 1031 Exchange, a DST can serve as the replacement property that an investor acquires after selling an investment property. DSTs have emerged as a favored approach for fulfilling the 1031 replacement property requirement rule.

BENEFITS OF A 1031

Tax & Wealth Preservation

• Tax Deferral – Defer capital gains and depreciation recapture taxes through a qualifying 1031 exchange.
• Potential Step-Up in Basis – Under current tax law, heirs may receive a step-up in cost basis of the property at death, potentially reducing or eliminating deferred tax liability.
• Preserve Investment Capital – Keep more equity invested and working toward long-term growth by deferring payment of capital gains taxes indefinitely.
• Enhance Investment Capital – Increase Net Equity on Day One. Using Coastal 1031 Exchange Consulting instead of a commissioned investment broker allows DST Sponsor firms to offer free credits, a.k.a. "gross-ups" and/or reduced expense arrangements to our clients (because Coastal 1031 Exchange Consulting forgoes the sponsor-offered commissions).

Passive Ownership & Professional Management

• Passive Real Estate Ownership – Eliminate day-to-day landlord responsibilities, maintenance issues, and tenant management.
• Professional Asset Management – Institutional sponsors manage leasing, operations, and property oversight.
• Reduced Management Burden – Continue owning real estate without the operational demands of direct ownership.
• Freedom from the "Three Ts" – No more tenants, toilets, and trash.

Access & Diversification

• Institutional-Quality Real Estate – Access larger, professionally managed commercial properties that may be difficult to acquire independently.
• Diversification Opportunities – Invest across multiple properties, markets, asset classes, and tenant profiles.
• Geographic Diversification – Gain exposure to broader real estate markets.
• Reduced Concentration Risk – Transition from a single property to a diversified portfolio of real estate assets.
• Fractional Ownership – Participate in high-value assets without sole ownership responsibilities.

Income & Portfolio Flexibility

• Competitive Income Generation – Receive potential cash flow distributions from professionally managed properties.
• Flexible Investment Amounts – Allocate exchange proceeds among one or multiple DST investments.
• Portfolio Repositioning – Transition between property sectors or markets without triggering immediate taxation.
• Portfolio Consolidation – Exchange multiple properties into a streamlined investment structure.
• Potential Inflation Hedge – Maintain exposure to tangible real assets that may benefit from inflationary environments.

Exchange Efficiency & Legacy Planning

• Simplified 1031 Exchange Execution – Access pre-identified replacement properties that can help satisfy IRS timelines.
• Retirement-Friendly Strategy – Maintain real estate exposure while reducing management responsibilities.
• Potential for Repeated 1031 Exchanges – Subject to applicable rules, investors may "swap 'til you drop" in order to possibly eliminate capital gains tax entirely at death via stepped-up cost basis on property. 
• Potential for Efficient "One and Done" 1031 Exchanges – Some Sponsors offer a 721/UPREIT approach into diversified REITs that no longer require further exchanging. 
• Estate Planning Advantages – DST or REIT interests may be easier to divide among heirs than a single property.

Important Disclosure

Delaware Statutory Trust (DST) investments involve risk, including possible loss of principal. DST interests are generally illiquid and may be affected by real estate market conditions, interest rates, tenant performance, and sponsor execution. There is no guarantee that investment objectives, income distributions, appreciation, or tax benefits will be achieved. Tax laws are subject to change. Investors should consult with their own tax, legal, and other financial professionals before making investment decisions.

 

A Simple Process for a Time-Sensitive Decision

A 1031 exchange has strict deadlines and requirements. Investors MUST engage a Qualified Intermediary before selling their property. We keep the process clear and efficient: start with a quick call to understand your timeline and goals, then review DST options for fit, fees, leverage, and sponsor considerations. We coordinate with your Qualified Intermediary and your tax/legal professionals so you can move forward confidently—without taking on another hands-on property.

 

3. Intermediary Completes Exchange by acquiring replacement property or properties.

45 Day Identification Period

The taxpayer must identify potential replacement property or properties within 45 days from the date of sale.

180 Day Exchange Period

The taxpayer must acquire the replacement property or properties within 180 days.