To successfully complete a 1031 exchange and defer 100% of your capital gains tax, you must replace the net sales price of your property.
| Property sale price | $525,000 |
|---|---|
| Closing Costs | $25,000 |
| Net Sales Price | $500,000 |
| Relinquished property loan | $200,000 |
| Cash received | $300,000 |
| Replacement property value: | $500,000 |
Let's say you owed $200,000 on the relinquished property at the time of sale, that amount must be repaid when the property is sold. After, the repayment of the loan your will have $300,000 in cash to purchase a replacement property that costs at least $500,000. You will either have to make up the difference or take out a new loan to follow the 1031 exchange guidelines.
DST's secure non-recourse financing backed by the real estate within the trust. The typical DSTs loan to value is between 45-65%. When an investor purchases an interest in a DST, the investor will inherit or be assigned a portion of the loan.