Mr. and Mrs. Jones have been farming all of their lives. They have two grown children and seven grandchildren none of whom wish to run the farm. They decide it is best to sell the farm now while prices are high. Mr. and Mrs. Jones need income to maintain their life-style but also want to preserve capital for the long-term and for their estate. While they know they must replace debt on the property they sold in order to defer taxes on that portion, they do not want to endure the loan process nor do they want to guarantee a loan.
Results without using a 1031 exchange:
Results with using a 1031 exchange and both single-owner and multi-owner DST structures:
**Debt Replacement: $1,000,000 using in-place non-recourse debt from DST’s**
An apartment building costing $1,000,000 is acquired in Fresno with no debt using the single- ownership structure. Professional management is retained. With the remaining $2,300,000, Mr. and Mrs. Jones acquire 6 different DTS’s. The DST’s include two multifamily properties in prime locations; one self-storage DST that owned ten different properties in ten different high growth areas; one single tenant net lease portfolio DST with 12 different properties and 8 different credit tenants; one DST that owns three senior housing facilities in prime locations; and one DST that owns two neighborhood shopping centers in prime locations.
The average debt already in place on each DST is 50% of the value. As a result, the debt replacement requirement is more than adequate to defer taxes of $350,000 that would have been due on the $1,000,000 of debt. And, Mr. and Mrs. Jones did not have to go through the loan process or guarantee a loan.