In 2004, the IRS issued formal guidance regarding the use and structure of DSTs as qualified replacement properties in 1031 exchanges. A few more years passed before DSTs became the preferred vehicle for fractional interest 1031 programs.
Before 2009, the more common syndicated 1031 program was the tenants-in-common structure, also known as a “TIC”. Today’s TIC programs are designed to comply with IRS Rev. Proc. 2002-22, which describes the parameters of a 1031-qualified TIC.
Under a TIC offering, up to 35 investors share legal title to a 1031 replacement property as co-owners. As such, each investor can vote on certain key management decisions but is also required to be a party to a separate purchase loan. Unlike DSTs, TICs can engage in significant capital expenditures.
Ultimately, the simplicity of DSTs (one loan, one owner, one deed) won the day over TICs. Yet TIC programs still exist for investors seeking investment opportunities beyond the scope of a DST structure.
The contents of this site constitute neither an offer to sell nor a solicitation of an offer to buy any security which can only be made by prospectus. Investing in real estate and 1031 exchange replacement properties may not be suitable for all investors and may involve significant risks. These risks include, but are not limited to, lack of liquidity, limited transferability, conflicts of interest and real estate fluctuations based upon a number of factors, which may include changes in interest rates, laws, operating expenses, insurance costs and tenant turnover.
Investors should also understand all fees associated with a particular investment and how those fees could affect the overall performance of the investment. Neither 1031 Capital Solutions or its representatives, nor DFPG Investments, Inc. provide tax or legal advice, as such advice can only be provided by a qualified tax or legal professional, who all investors should consult prior to making any investment decision.