FREQUENTY ASKED QUESTIONS

To ensure compliance with requirements imposed by the IRS, we inform you that the information posted at this website does not contain anything that is intended as legal or tax advice, and that nothing herein can be relied upon as legal or tax advice. Further, the IRS wants us to let you know that nothing herein can be used for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein. Apex Capital Management Ltd. cannot advise the owner concerning specific tax consequences or the advisability of a tax-deferred exchange for tax purposes. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This website contains information that has been obtained from sources believed to be reliable. However, Apex Capital Management Ltd. and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies; declining market values; potential loss of entire investment principal; that past performance is not a guarantee of future results; that potential cash flow, potential returns, and potential appreciation are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than $5 million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney. An investment in the DST Units is speculative and involves substantial investment and tax risks. There are no guarantees of cash flow, distributions or real estate appreciation. Investors could lose some or all of their investment in the DST Units. Projections of future performance contained herein are based on specific assumptions discussed more fully in the Private Placement Memorandum and do not constitute a guarantee of future performance. Investors are advised to review the Confidential Private Placement Memorandum in its entirety and consult with their own legal, tax, financial and business advisors prior to investing.

WHAT IS A TAX DEFERRED EXCHANGE?

A tax-deferred exchange is a method for selling one qualifying property and the subsequent acquisition of another qualifying property within a specific time frame. This is very similar to selling one property and buying another in a standard sale and purchase scenario, but an exchange is different because the transaction is considered an exchange and not a sale. An exchange allows the taxpayer to qualify for deferred gains while a sale does not. There are specific rules regarding how the exchange is processed for it to qualify for the favorable deferred tax treatment.

WHAT IS A DST INVESTMENT?

A Delaware Statutory Trust is a separate legal entity created as a trust under Delaware Statutory law used to hold title to investment real estate. DSTs are an alternative for 1031 exchange investors seeking replacement properties, offering the potential for monthly income and diversification without any on-going landlord duties

WHO IS ELIGIBLE TO INVEST IN A DST?

Only Accredited Investors can invest, which means you must meet certain thresholds as defined by the Securities and Exchange Commission. As an individual investor, you must have an annual income of over $200,000 per year ($300,000 per couple) with the expectation of that continuing, or a net worth of more than $1 million, excluding the value of a primary residence.

WHAT ARE THE BENEFITS OF A DST INVESTMENT?

A property owner or investor who wants to continue receiving income but does not want to deal with tenants, and general property management subsequent to the sale of their existing property should consider investing in a DST. This will allow them to defer the payment of capital gain taxes in amounts which can exceed 20%-30%, depending on the appropriate combined federal and state tax rates. When purchasing replacement property without the benefit of an exchange, your buying power is dramatically reduced and represents only 70%-80% of what it did previously.

Investors have a simple and efficient closing process. Investors also have protection against loan recourse liability, because they are not personally liable for the acquisition of properties included in the DST. Their credit is not on the line, therefore remains unaffected.

WHAT ARE THE RULES REGARDING DEFERRING CAPITAL GAINS WHEN INVESTING IN A DST?

The basic rules to fully defer the capital gain taxes realized from the sale of a property include:

The amount invested needs to be equal to or greater than the net sales price of the relinquished property and;
All equity received from the sale of the relinquished property must be used to invest in the DST.

If these rules are not followed a tax liability will be incurred by the investor:

When the replacement property purchase price is less, there will be tax, because not all equity is moved from the relinquished property to the DST.
Partial exchanges are acceptable but only qualify for partial tax deferral.
The amount not invested in the DST will be taxed as boot, or non like-kind property.

MAY I INVEST IN MULTIPLE DST PRODUCTS?

You absolutely can invest in multiple DST products. You can exchange one property for multiple DST products if you wish. You can exchange multiple properties for multiple DST products as well.

IF TAX IS INCURRED ON AN EXCHANGE, IS IT BASED ON MY EQUITY OR GAIN?

Tax is calculated based on your taxable gain. To determine your gain, identify your original purchase price, deduct any depreciation, which has been previously reported, then add the value of any improvements, which have been made to the property. This results in your cost or tax basis. Your gain is then calculated by subtracting the cost basis from the net sales price.

WHAT ARE THE BENEFITS OF A 1031 EXCHANGE?

One of the primary advantages of a 1031 exchange is the ability to dispose of a property without incurring a capital gain tax liability. This allows the earning power of the deferred taxes to work for the benefit of the investor to acquire new property or invest in a DST, instead of being paid to the government.

WHAT TIME LIMITS EXIST WITH A 1031 EXCHANGE?

You have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification notice must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary. Notice to your attorney, real estate agent, and accountant are usually not sufficient. Replacement properties must be clearly described in the written notice. In the case of real estate, this means a legal description, or street address.

When completing an exchange from one property to a replacement property a second limit exists. The replacement property must be received and the exchange is to be completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier.

WHAT RESTRICTIONS EXIST WITH A TAX-DEFERRED EXCHANGE?

It is important to not take control of cash or other proceeds before the exchange is complete. This may disqualify the entire transaction from like-kind exchange treatment and make all gain immediately taxable. If cash or other proceeds that are not like-kind property are received at the conclusion of the exchange, the transaction will still qualify as a like-kind exchange. Gain may be taxable, but only on the proceeds that are not considered like-kind property.

It is recommended to use a qualified intermediary or other exchange facilitator (this cannot be you, your agent or broker, attorney, accountant, etc.) to hold those proceeds until the exchange is complete to avoid premature receipt of cash or other proceeds. Be very careful in your selection of a qualified intermediary. There are many strict requirements and restrictions with these transactions and you want to make sure they are handled with care, transparency, and diligence. We can help you identify a legitimate qualified intermediary.

CAN EXTENSIONS BE GRANTED FOR THE 45 AND 180 DAY EXCHANGE DEADLINES?

These deadlines cannot be extended for any reason except by a Presidential Disaster Declaration. The deadline is not extended if it falls on a Saturday, Sunday or legal holiday.

WHAT HAPPENS AFTER YOU INVEST IN A DST?

DST’s normally have a varying term depending on the specific DST product(s) you have chosen. After the specified DST term(s) has elapsed, you are able to continue tax-deferral by investing in another DST or investment property. Investors have options because they can go back into an investment real estate property if they choose to do so. The same rules, timeframes, and restrictions mentioned above apply if they wish to continue tax deferral.

Another option would be to take cash instead of reinvesting into another DST product or investment property. If cash is taken the investor’s full tax liability will become due. A partial amount can be reinvested and taken in cash. Tax is only due on the partial amount.

HOW LONG CAN TAXES BE DEFERRED?

Taxes can be deferred indefinitely as long as funds are reinvested in another DST or back into an investment real estate property.

WHAT HAPPENS TO DST INVESTMENT PROCEEDS UPON DEATH?

If the taxpayer dies before the DST investment is completed, this asset is inherited by a person(s) from the estate of the taxpayer who completed the original exchange. They will collect the yield until the DST liquidates. At that point, they can do another exchange, take the money out or handle it any way they like. At the time of death, the replacement property will have a stepped-up cost basis. Whatever gain was deferred in the original Like-Kind Exchange transaction will be eliminated entirely following the inheritance. The initial tax deferral on the property now turns into a tax-free event. This could be a vital estate planning tool to eliminate large tax liabilities on appreciated property.

WHAT TYPE OF PROPERTIES QUALIFY AS LIKE-KIND FOR THE DEFERRED EXCHANGE INVESTMENT?

Many investment properties qualify for the deferred tax investment. These include unimproved and improved properties, vacant land, net-lease property, commercial buildings, rental properties, farms or ranches, resort property, industrial property, office buildings, retail space, self-storage facilities, senior-living centers, hotels or motels, restaurants, daycare facilities, tire and automotive stores, and TIC properties.