1031 Exchange with DST's Delaware Statutory Trusts as Replacement Property

[kmenace45]

Tomorrow I will be setting up the DST's that I purchased from the proceeds of the sale of rental property on depreciation schedules.  I hope it will not be too difficult. I understand you have to set up assets for each DST, and take the information provided by the sponsors (I hope it is adequate) re the buildings and land. All are commercial rental properties and I don't think they have any personal property and give you no further breakdown other than building and land.

If any of  you have experience in setting these up your input would be appreciated.  

In retrospect, I would have bought fewer of them, and some will require state income tax returns. I bought them late in the year so I had no income until 2019, however I think I have to set up the depreciation schedules on the 2018 return though there will probably be no depreciation for 2018 as they were purchased  after 12/15. Yes, I will have to attach a summary of how I allocate the basis from the 8824 which is ridiculously low due to previous deferrals.  

[tagteam]

Frankly, I strongly suspect you are exiting the do-it-yourself arena and will require professional tax guidance. 

Regardless, TurboTax does not facilitate setting up (and tracking) multiple replacement properties and, in fact, doing so is officially not supported.

See http://www.winthcowealthmanagement.com/delaware-statutory-trust-pros-and-cons

See also https://ttlc.intuit.com/community/business-taxes/discussion/how-is-a-dst-taxed-that-is-operating-as-...

[kmenace45]

I believe I can do the allocation of value myself and just set each one up like a new rental property.  I don't know why I couldn't but I'll let you know if it doesn't work.

Most CPA's haven't even heard of DST's , at least the ones I've asked haven't so you have to look around to get assistance. I was hoping someone on here had DST's on their tax returns but most with DST's probably aren't doing their own tax returns on turbo tax. Thanks for the input. 

[kmbayarea]

I have the same question that you had posted. I sold my rental property last year  and invested in four like kind DST investments in multiple states using a QI. How did you end up completing your tax return for last year? I have spent an inordinate amount time on TurboTax Premier to figure the right way to input the transactions. I am ready to give up and hire a local CPA who is familiar with the DST investments. 

[tagteam]

Multi-property exchanges are rather complex, so professional guidance is recommended. A link to the Reg section appears below but it may not be of much help since some of the examples are no longer relevant after tax reform (personal property is used in some examples). Regardless, it would be wise to seek an in-person consultation with a tax professional who if familiar with, and has prepared returns for, multi-asset exchanges.

https://www.law.cornell.edu/cfr/text/26/1.1031(j)-1

[kmenace45]

My situation was not as complicated as some. I had no debt.  

Really, I'd try to find a CPA experienced with DST's and let them do it the first year.  It took me a lot of time and I didn't enjoy the process.  I bought 5 replacement DST's (which I would not do again). You set up each new DST as a separate rental and pick up the year end figures provided by the sponsor on the schedule E for each asset. For depreciation, you have to set up each DST on their own schedule. And there is an election you can make to treat it all as a new asset, or the default is to carry forward the old depreciation and set up any additional paid as new asset depreciation.  The sponsor again should have provided you with values for depreciation. They do not give you details about cost segregation, just land and buildings.  In my case that would not have been material so I didn't bother asking for it, but you could. 

In reporting the 1031 exchange you have to show the allocations to each new DST. 

It is very important to file on time or extend your return and file by the extension date or your exchange can be invalidated. 

Finding a good CPA experienced with DST's is not easy, you have to ask them what their experience is with 1031 exchanges into DST's, and multiple ones at that.  

Good luck.  In the future I will keep my exchanges simpler. I would not count on Turbo Tax "telling" you how to do this. And I ended up filing paper as I had elections to file and did not agree with Turbo Tax on the QBI election statements. 

[kmenace45]

Thanks for the link. 

[riekdan]

Question: I have a single DST which is giving me a list of properties. - Do you have the same? In that case, did you enter each property as a separate Schedule E, or just one for the totals?

[kmenace450]

I think you could enter it either way and the results are the same. Each property has to have it's own depreciation, which can be listed separately on 1 depreciation schedule with the DST as one rental property.  Or you can list each property as a separate property on schedule E, however that probably won't work well as your income will quite likely be reported in a lump sum from all properties if it is one DST. Depends on the reporting you get from your sponsor.  I'd list it as one rental with 3 separate properties on the depreciation schedule for that DST.  On never knows if the DST will liquidate all properties at the same time or not. 

[kmbayarea]

Thank you. Sorry for the belated response. I ended up using a tax professional who was familiar with the DSTs. It somewhat complicated to determine the basis and its allocation among the replacement properties going forward. I am back again using Turbo this year with the depreciation basis for each replacement property being set up  for year 2019 it should be straight forward for 2020. 

[kmbayarea]

I ended up using someone who was familiar with the DSTs. It got somewhat tricky to determine the basis on form 8824 as I had made extensive repairs to the property before the sale. Some of these repairs needed to be capitalized or treated as selling expense. Once you determine the carry forward  basis ( FMV of properties received less the deferred gain- line 18 on form 8824), you can allocate that carried forward basis on a pro rata basis for each replacement property based on % of your total investment.  You can also elect to not depreciate the remaining basis of the relinquished property and instead include it the new new basis for replacement properties.  I developed a spreadsheet to allocate the basis which I provided to my tax consultant.   I will be happy to share the excel spreadsheet if you like.    

[pat2019]

kmbayarea it would be very helpful if you could share the spread sheet.  I did an exchange two rental properties into 5 DST's.

[tagteam]

@pat2019 

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