In this webinar replay, we walk through one of the most important conversations real estate investors can have before selling a property. Matt Schumacher, Director of Tax Planning at Tavola Group, is joined by Doug Zator of Irvine Advisors to break down how 1031 exchanges actually work and how Delaware Statutory Trusts, or DSTs, are being used today to create more flexibility and more passive investment options.

If you are thinking about selling an investment property or simply want to understand how to reduce tax exposure, this session is designed to give you a clearer picture of what is possible and where these strategies may fit into your overall plan.

If you would like help reviewing your situation, we offer a complimentary consultation where we can walk through your options and identify potential opportunities.

Why planning before the sale matters

We opened the conversation by emphasizing something we see all the time. Too often, investors wait until after a transaction to think about taxes, when in reality the biggest opportunities come from planning ahead.

When we take a proactive approach, we are not just reacting to what already happened. We are making intentional decisions that can reduce tax liability, improve cash flow, and better align with long-term goals. This becomes even more important with real estate, where the size of the transaction can significantly impact the outcome.

How a 1031 exchange works in practice

At its core, a 1031 exchange allows us to sell an investment property and reinvest the proceeds into another qualifying property without immediately paying capital gains taxes.

The benefit is straightforward. Instead of losing a large portion of the proceeds to taxes, we keep that capital invested and working. Over time, that can make a meaningful difference in overall returns and long-term wealth building.

Without a 1031 exchange, taxes can take a significant bite out of the sale. Between capital gains, depreciation recapture, and state taxes, it is not uncommon to see a substantial portion of the gain go to the government. That is why this strategy continues to be widely used.

The rules we need to get right

One of the most important parts of this conversation is understanding that 1031 exchanges come with strict rules. There is very little flexibility once the clock starts.

From the moment a property is sold, we have 45 calendar days to identify potential replacement properties. From there, we have a total of 180 days to complete the purchase. These are hard deadlines, and missing them can disqualify the entire exchange.

We also cannot take possession of the funds. A qualified intermediary must hold the proceeds throughout the process. If we receive the funds directly, the exchange is no longer valid.

To fully defer taxes, we also need to reinvest all proceeds into property of equal or greater value and account for any debt that was on the original property.

What happens if something goes wrong

This is where planning really matters. If we miss the 45-day identification window, the exchange fails and the proceeds become taxable. If we identify properties but cannot close within 180 days, the result is the same.

There are very few exceptions to these rules, which is why we always stress getting everything lined up before initiating a sale. Having the right team involved early can make all the difference.

Clearing up the “like-kind” misconception

One of the biggest misconceptions we hear is that you have to exchange into the same type of property you sold.

In reality, like-kind is much broader. As long as the property is held for investment purposes, we have flexibility to move between different types of real estate. That could mean going from residential to commercial, or from a single property into multiple assets.

What does not qualify are primary residences or short-term flip properties. Outside of that, there is more flexibility than most people expect.

Where DSTs come into play

This is where the conversation starts to shift. Delaware Statutory Trusts have become a popular option, especially for investors who are looking to simplify their portfolio or step away from active management.

With a DST, we are investing in fractional ownership of institutional-quality real estate alongside other investors. These properties are professionally managed, which means we are not dealing with tenants, maintenance, or day-to-day operations.

For many investors, this is an appealing way to stay invested in real estate while removing the hands-on responsibilities.

Why more investors are considering DSTs

One of the biggest advantages we see with DSTs is flexibility. Instead of putting all capital into a single property, we can spread it across multiple assets and asset classes. That creates diversification that is often difficult to achieve with direct ownership.

DSTs also help solve a common challenge with 1031 exchanges, which is timing. Because these properties are already structured and available, it becomes much easier to meet the 45-day identification window and close within the required timeframe.

Another important piece is access. DSTs open the door to larger, institutional-quality properties that many investors would not typically be able to access on their own.

Handling debt in a 1031 exchange

One of the more technical points we covered is the requirement to replace both equity and debt.

Even if a mortgage is paid off at the time of sale, the IRS still requires us to account for that debt when completing the exchange. If we do not, it can create a taxable event.

DSTs can simplify this process because many of them include built-in financing. That allows us to meet the debt replacement requirement without having to go out and secure a new loan ourselves.

When this strategy tends to make sense

We often see these strategies come into play at key transition points. For some investors, it is about stepping away from active management after years of owning property. For others, it is about creating more consistent income or simplifying a portfolio.

It can also be a solution when timing becomes a concern and identifying a replacement property within 45 days feels unrealistic. In those cases, having access to pre-structured options can make the process much smoother.

What to take away from this discussion

The biggest takeaway from this session is that 1031 exchanges are powerful, but they require planning. When used correctly, they allow us to defer taxes, keep more capital invested, and create more flexibility in how we approach real estate.

When we combine that with tools like DSTs, we gain additional options, whether the goal is diversification, passive income, or simply reducing the day-to-day responsibilities that come with property ownership.

Let’s talk about your situation

If you are thinking about selling a property or want to explore whether a 1031 exchange or DST strategy makes sense for you, we are here to help.

We offer a complimentary consultation where we can review your current position, walk through potential strategies, and help you build a plan that aligns with your goals.