COVID-19 and the CARES ACT- 1031 Exchanges and DST Solution

April 3, 2020

Al DiNicola DST Investments, LLC – Registered Investment Advisors

It is a fact the Coronavirus has abruptly change the financial world in many ways Financial Advisers, CPAs, 1031 Intermediaries, Real Estate Brokers and many other are attempting to adjust on a variety of fronts.  There are many moving parts to real estate transactions under normal condition. Today, we have seen additional attention provided to real estate contracts especially those utilizing a 1031 tax deferred exchange.

I have reviewed the 880 pages of the CARES Act, spending more time on those sections affecting real estate investing.   After this review, I did not find any reference that would impact the 1031 Tax Deferred Exchange process, timing or extension included within that text.  In other words, there are no extensions!

CVID-19 Delays

Currently, we have several “Closings” on the down leg property (that a property owner is selling) that have been delayed for a variety of reasons.  Some of the transaction are focused on financing where the banks now need to reevaluate the acquisition.  Other are simply because the buyers cannot freely inspect the property as in the case in New York.  In other situations, the real estate also has a business included with the sale and there is additional time needed to reopen that business and to evaluate the full contract price.

However, if you have already close on the “Down Leg” and looking for the replacement property you may be in a rather uncomfortable position.  Without a provision for a closing extension, you may not be able to physically inspect the property, finalize the transaction or even conduct basic due diligence.  In addition, certain rental properties may have short term blips or interruptions in the potential income stream.

Practical & Logical

 If you have already closed on your down leg and within the 45-day identification period a DST* may be the practical and logical solution to the situation.  DSTs are carefully prepackaged and can close quickly.   We have heard from investors who have identified specific assets to purchase only to be notified by the lenders that the financing would not be provided.  With a DST there is no need to qualify for debt financing since DSTs are structured with a non-recourse loan.  DSTs usually employ moderate to low leverage to be more conservative, but there is also a selection of “All Cash” DSTs for those looking for something ultra conservative or for a place for other “cash” capital, to enjoy the tax and economic benefits of owning income producing real estate.

DST pay monthly distributions and are approved by the IRS to be used to defer capital gains, retaining the same real estate investment attributes!

HELP IS AVAILABLE

For more details please contact us for the up to date availability of DST in all asset classes, geographic locations and most important that have been through a due diligence process.

If you are considering selling your investment property and looking for a logical alternative for a replacement property, please contact us.  We have over 40 years’ experience in the real estate market and 1031 exchanges.  My name is Al DiNicola, my toll-free number is 800.378.0515 extension 700 and my email address is. adinicola@dst.investments.  Meanwhile, stay safe and healthy!

*DST are Delaware Statutory Trust and are available only to Accredited Investors.

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