Looking to do a 1031 exchange in Hawaii. Utilizing a Deleware statutory trust, or DST, could be a good option for you.
A Delaware statutory trust (DST) permits fractional ownership where multiple investors can share ownership in a single property or a portfolio of properties, which qualifies as replacement property as part of an investor's 1031 exchange transaction. A DST takes all decision-making out of the hands of investors and places it into the hands of an experienced sponsor-affiliated trustee.
The DST is the single owner and agile decision maker on behalf of investors.
Most real estate investors can't afford to own multi-million dollar properties. DSTs allow investors to acquire partial ownership in properties that otherwise would be out of reach.
Loans are nonrecourse to the investor. The DST is the sole borrower.
DSTs can accommodate much lower minimum investments, whereas 1031 exchange minimums often are $100,000.
Investors can divide their investment among multiple DSTs, which may provide for a more diversified real estate portfolio across geography and property types.
All 1031 exchange investments receive a step-up in cost basis so your heirs will not inherit capital gain liabilities, and provides them with professional real estate management versus the burden of hands-on management.
If for some reason the investor can't acquire the original property they identified, a secondary DST option allows them to meet the exchange deadlines and defer the capital gains tax.
Any remaining profit on the sale of your relinquished property is considered "boot." This remaining money becomes taxable unless you eliminate it. The excess cash (boot) can be invested in a DST to avoid incurring tax.
The DST structure allows the investor to continue to exchange real properties over and over again until the investor's death.
Owners of investment and business property may qualify for a 1031. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.
Report on Form 8824 and file it on your tax return for the year in which the exchange occurred.