Defer Capital Gains Tax with 1031 Exchange

Written By Gerald F. Baker, III

Section 1031 of the Internal Revenue Code allows an investor to defer the payment of capital gains taxes that may arise from the sale of a business or investment property. By using the proceeds of the sale of such property to purchase “like-kind” real estate, taxes may be deferred, as long as the investor satisfies certain conditions.

Delaware Statutory Trusts (DSTs) are the Partial Ownership Structure of Choice

DSTs permit fractional ownership where multiple investors can share ownership in a single property or a portfolio of properties. Interests in a DST qualify as replacement property as part of an investor’s 1031 exchange transaction. DSTs take decision-making out of the hands of investors and place it into the hands of an experienced sponsor affiliated trustee.

Three Basic Steps for Investors with a Property to Exchange

  1. Exchanger sells property, known as the relinquished property, and proceeds are escrowed with a Qualified Intermediary (QI)

  2. Qualified Intermediary, through a written agreement with the investor, transfers funds for purchase of replacement property

  3. Exchanger receives beneficial interest in a DST

1031 Exchange Timeline

There are specific timelines and procedures that must be followed to take advantage of the benefits of a 1031 exchange. The entire 1031 exchange timeline can take no longer than 180 days, including a 45-day identification period.

  • Day 1 - Sell Property: Proceeds are escrowed with a Qualified Intermediary (QI).

  • Day 45 - Identify a property within 45 days.

  • Day 180 - Close on new property with 180 days of the sale of the relinquished property.

A Few Key Benefits of DST 1031 Exchanges

  • No Management Responsibilities

  • Access to Institutional-Quality Property

  • Limited Personal Liability

  • Lower Minimum Investments

  • Diversification

  • Estate Planning

Content courtesy of Inland.

Gerald F. Baker, III

After working in various institutional investment firms, Jerry Baker founded Baker 1031 Funds, an investment firm dedicated to providing individual real estate investors with tailored 1031 exchange solutions. Baker 1031 Funds was established with the mission of offering individual investors the same opportunities as institutional investors, enabling them to enjoy the benefits large institutions typically have—without compromising what matters most to the individual investor.

Before founding Baker 1031 Funds, Jerry held key positions in the real estate private equity and hedge fund sectors. He served in various roles, including as a member of the investment committee, portfolio manager, and trading desk director. Over the course of his career, Jerry has been involved in more than $10 billion in commercial real estate transactions.

Much of Jerry’s real estate and investment expertise stems from his time spent working alongside his father and uncle in the family business. Whether underwriting potential acquisitions with his father or assisting his uncle with property maintenance, Jerry developed a hands-on understanding of real estate investing. These experiences not only equipped him with valuable skills but also gave him insight into the advantages institutional investors hold over individual investors, as well as a deep appreciation for the goals and challenges individual investors face.

Jerry is dedicated to supporting children's organizations in Detroit, Los Angeles, and New York. He is also an active contributor to the Babson College Alumni Association, focusing on student finance and real estate initiatives.

https://baker1031funds.com
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Utilizing DSTs in a 1031 Exchange