Strategies / 1031 Exchanges
1031 Exchanges
Defer capital gains on the sale of investment real estate by reinvesting through institutional-quality Delaware Statutory Trust programs.
What is a 1031 Exchange?
Section 1031 of the Internal Revenue Code allows investors to defer the recognition of capital gains taxes on the sale of investment real estate by reinvesting the proceeds into a like-kind replacement property within a defined timeline.
It is one of the most established tax-deferral strategies in real estate, preserving value that would otherwise be lost to taxes at the time of sale.
How a 1031 Exchange works
A fully tax-deferred 1031 Exchange generally requires the replacement property to equal or exceed the value of the relinquished property, with all of the equity from the sale reinvested. Debt does not need to be replaced dollar-for-dollar; it can be reduced if offset with additional equity. Cash taken out or equity not fully reinvested may create taxable boot.
IRC § 1031
A structured timeline
45 days to identify. 180 days to close. Tax deferral continues indefinitely.
01 / Property Sale
Day 0
Sale of original investment property. Proceeds are wired directly to a qualified intermediary.
02 / Identify Replacement
Day 45
Deadline to identify replacement property. Several identification rules are available, including the three-property, 200%, and 95% rules.
03 / Close Exchange
Day 180
Deadline to close on the replacement property and complete the exchange.
04 / Continue Deferral
Indefinite
Tax deferral continues until disposition of the replacement property absent a successive 1031 or 721 contribution.
The exchange must be facilitated by a qualified intermediary, who holds the sale proceeds and ensures the transaction meets IRC Section 1031 requirements. Deferred gain may be eliminated entirely through a step-up in basis upon the investor's death.
Why Delaware Statutory Trusts
Before 2004, completing a 1031 exchange typically meant identifying, purchasing, and managing replacement property directly. Earlier fractional structures, including Tenant in Common arrangements, introduced operational and lender-side complexity that limited scale.
In 2004, the IRS issued Revenue Ruling 2004-86, confirming that beneficial interests in a properly structured Delaware Statutory Trust are treated as direct interests in real property for purposes of Section 1031. The ruling established the legal foundation for the modern DST market.
A DST allows investors to hold a fractional interest in institutional-quality real estate. Because DST interests are recognized as eligible 1031 replacement property, investors can defer capital gains while accessing professionally managed real estate without the obligations of direct ownership.
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Sightbridge's Approach
1031 Exchange programs from Sightbridge
Sightbridge is preparing DST programs for the private wealth channel. Each is designed to meet the standards of underwriting, structure, and service that institutional investors expect.
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