Tax Strategy Videos

Can You Use 1031 Exchange Money in a Syndication? TICs, DSTs & UPREITs Explained

The episode tackles a common question among real‑estate investors: can 1031 exchange proceeds be funneled into a syndication fund? Host Nathan Sosa and co‑host Tom Castelli explain that the tax code bars a direct swap of real‑property for a partnership interest, forcing sponsors to use specialized structures. They break down the two primary workarounds. A Tenants‑in‑Common (TIC) lets an investor own a fractional share of the replacement property, sitting alongside the LP entity but not inside the partnership itself. A Delaware Statutory Trust (DST) operates as a trust that directly holds the asset, qualifying the investor as a direct owner under IRS Rev. 2004‑86. Both routes involve extra legal, accounting, and compliance layers, and they restrict the sponsor’s fee and promote structures. Real‑world examples illustrate the hurdles: sponsors often set a minimum gain threshold—sometimes a million dollars—before entertaining a TIC or DST investor, citing higher admin costs and the risk of unintentionally creating a partnership that triggers penalties. The hosts note a 40% year‑over‑year rise in DST equity raises projected for 2025, underscoring growing market interest despite the complexity. For investors, the takeaway is clear: leveraging 1031 capital in a syndication is possible but demands careful structuring and professional guidance. Sponsors must weigh the added expense and reduced compensation against the benefit of attracting large, passive capital, while investors need experienced CPAs to ensure compliance and preserve the tax deferral advantage.