1031 Exchange Services & DST Properties in Healthcare
Complete your 1031 Exchange in the state of Florida.
An overview of what you need to get your 1031 Exchange done in time. Healthcare Realty Solutions has new DST 1031 exchange properties in healthcare. Our properties provide reliable monthly cash flow along with being a stable real estate investment.
The Role of the Qualified Intermediary
The role of the qualified intermediary is essential to completing a successful and valid delayed 1031 exchange. A delayed 1031 exchange occurs when, for this example, a Florida real estate investor sells an investment property and is looking to defer the payment of taxes related to the sale on the investment property. Taxes related to the gain on the sale include both taxes paid on capital gains and taxes related to the depreciation taken in prior years. Taxes related to prior years’ depreciation are typically paid at tax rates used for ordinary income.
In order to meet the IRS 1031 exchange guidelines via the future purchase of replacement property the real estate investor must use a qualified intermediary. The use of the qualified intermediary takes advantage of the IRS “safe harbor” rule for deferring taxes from the sale of real estate on both capital gains and taxes related to depreciation recapture. In order to take advantage of the use of the qualified intermediary IRS “safe harbor” there must be an agreement between the real investor “Seller” and the qualified intermediary. A qualified intermediary is formally defined as a person who is not the real estate investor “Seller” and who enters into a written agreement (the “exchange agreement”) with the real estate investor “Seller” and, as required, acquires the relinquished property from the real estate investor “Seller”, transfers the relinquished property to the buyer and then acquires the replacement property on behalf of the real estate investor “Seller”,and thereafter transfers the replacement property to the real estate investor “Seller”. The steps sound like many but the process is rather simple and straight forward.
There are differing entities that can meet the requirements for a qualified intermediary. Qualified Intermediaries are those engaged to hold property sales proceeds so that the real estate investor “Seller” who sold the investment property may avoid the constructive receipt of proceeds and thereby allow for a 1031 exchange to take place.
HealthCare Realty Solutions’ role in the 1031 exchange services process is to provide 1031 exchange replacement property. Specifically, 1031 exchange property opportunities in healthcare real estate. Real estate opportunities that can meet the requirements for a 1031 exchange.
With proper planning our 1031 exchange real estate DST services allow for the deferral of capital gain tax treatment along with the taxes associated with the sale from depreciation recapture.
Continuing on with our example, a Florida real estate investor “Seller” who sells investment property (i.e. condominium, land, apartment, office building, retail center, timber land, mobile home, etc.) can take an ownership interest in our Delaware Statutory Trust “DST” which in turn owns the underlying healthcare real estate investment and thus can defer the taxes associated with the sale of real property. Real property defined as real estate held for investment.
IRS Code Section 1031 allows for a real estate investor “Seller” to take up to 100% of the sales proceeds from the sale of real property and then purchase ownership (i.e. through a DST) in a new property, while deferring the tax on capital gain and depreciation recapture. In our example, the Florida real estate investor qualifies for a 1031 exchange through our DST even when the replacement property is not in the home state of Florida but in another state for example North Carolina or California.
The Basics for a 1031 exchange:
Florida real estate investor “Seller” arranges for the sale of real property (i.e. condominium, land, apartment, mobile, industrial building, etc.) and includes within the sales contract language allowing for a 1031 exchange.
At the closing, sales proceeds are not received directly by the Florida real estate investor “Seller” but deposited with a qualified intermediary. HealthCare Realty Solutions has used title companies to act in the capacity of a qualified intermediary such as: Chicago Title & Trust, IPX 1031, First American Title among others in order to hold funds for reinvestment in real estate. A qualified intermediary is necessary under IRS Code Section 1031 “safe harbor” provisions and although a title company is not required in all states a trusted qualified intermediary is highly recommended.
Further, along with our example concerning the Florida real estate investor “Seller”, under IRS Code Section 1031 replacement property identification is required to be in writing. In our case, using the qualified intermediary Chicago Title & Trust, the replacement property is identified for the purpose of replacing the relinquished or sold property. This identification must be done within 45 days from the date of sale of the relinquished property. Should a replacement property not be identified within this 45 day “window” the Florida real estate investor “Seller” will be disqualified from making a 1031 exchange and thereby deferring any taxes related to the sale whether through capital gains or through depreciation recapture. As a reminder depreciation recapture is calculated at the rates used for ordinary income.
Finally, in order for the Florida real estate investor “Seller” to complete the 1031 exchange the replacement property purchase must be completed within 180 days from the sale of the relinquished property. The 1031 exchange is completed by directing the qualified intermediary to release funds for the closing purchase of the replacement property. Once the purchase is complete the requirements for a 1031 exchange have been met.
Other Key Requirements:
The replacement property must be of equal or greater value than the property sold in order to fulfill the requirements of a 1031 exchange. A partial exchange can occur when the replacement property is of lesser value thus creating what is called “boot”. A lesser exchange does not eliminate the 1031 exchange in its entirety but does not defer that portion of the gain tied to the unfulfilled 1031 exchange requirement.
The cash portion of the sales proceeds has to match the cash portion of the replacement property. The debt portion of the relinquished property can be made whole through either an equal replacement of debt on the replacement property at the time of purchase or by providing cash as a substitute for debt. These rules are the same whether the real estate investor “Seller” lives in Florida or any other state.
History of IRS Code Section 1031
Section 1031 has been a part of the tax code since 1921. In 1995, the IRS began allowing for replacement properties to have multiple owners and still qualify as a 1031 exchange. Today, for properties with multiple owners the Delaware Statutory Trust (DST) is the vehicle most used when meeting the 1031 exchange requirement. HealthCare Realty Solutions DST investments in healthcare real estate are professionally managed properties with rating agency credit offering exceptional returns. All of this means that for the real estate investor looking to find a replacement property they no longer have to go it alone. In fact, HealthCare Realty Solutions co-invests in every one of its properties so we understand the importance of finding just the right 1031 exchange replacement property.
What is the DST again?
A Delaware Statutory Trust (DST) is a legal entity structured under the laws of the State of Delaware. A DST acquires real estate for the purpose of meeting the requirements for a 1031 exchange replacement property. Each taxpayer or seller of real estate (in our example the Florida real estate investor “Seller”) who exchanges into the DST becomes a “beneficial owner” of the trust. Each owner’s beneficial interest is based on the amount they exchange or contribute to the Trust. All income of the DST along with expenses, appreciation, debt reduction, improvement basis, etc. are shared based on the owner’s percentage interest in the DST.
Advantages of HealthCare Realty Solutions DST properties:
Our DST properties are designed to provide steady monthly income based on long-term leases with hospital systems that have long track records and demonstrated long-term performance. Performance in healthcare that is recognized, reviewed and rated by the national credit rating agencies of Moody’s, Standard & Poor’s, and Fitch.
Property investments made through our DST’s rely not only on our years’ of real estate expertise and commitment but the reliability of tenancy as confirmed via nationally recognized and independent credit rating agencies. Credit rating agencies that have come to be known as the reliable source for information that leads to better investment decisions.
Are we in it for both the good times and the bad? Absolutely! Are we are invested right alongside you? Absolutely! Principal to Principal that’s the way we do it!