The world of 1031 exchanges and DSTs continues to evolve as commercial real estate investors search for tax efficiency, diversification, and passive income solutions.
In this episode of Did It Close?, we sat down with Dave Bulger of Perch Wealth to unpack the mechanics behind 1031 exchanges, Delaware Statutory Trusts (DSTs), and 721 exchanges.
For seasoned investors and CRE professionals, the basics may be familiar—but the nuance around timelines, intent, depreciation recapture, and passive replacement strategies often determines whether an exchange is merely compliant or strategically optimized.
This guide breaks down everything you need to know.
Table of Contents
Episode Summary
What Is A 1031 Exchange?
The 1031 Exchange Timeline: Key Deadlines & Rules
Deferral vs. Elimination: Understanding the Tax Strategy
Partial Exchanges, Boot & Refinancing Considerations
721 Exchanges Explained
What Are DSTs (Delaware Statutory Trusts)?
How DSTs Solve 1031 Exchange Challenges
Fees, Debt Structures & Risk Considerations
Where 1031 Exchange News Is Headed
Final Thoughts: Why 1031 Exchanges and DSTs Matter Now
About Dave Bulger
About Did It Close?
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Episode Summary
Dave Bulger describes the 1031 exchange as “one of the most powerful tax planning vehicles the IRS allows”—and for good reason. The conversation covers:
- How capital gains and depreciation recapture are deferred
- Why the 1031 exchange timeline creates urgency
- What happens if investors take partial cash out
- The importance of “intent” in IRS interpretation
- How DSTs provide passive replacement options
- When 721 exchanges into REIT structures make sense
For CRE professionals advising clients, this episode clarifies the strategic tradeoffs between direct ownership and securitized 1031 structures.
What Is A 1031 Exchange?
A 1031 exchange refers to Section 1031 of the Internal Revenue Code, which allows investors to defer capital gains taxes when selling investment property and reinvesting into “like-kind” property.
Key points CRE pros should remember:
- “Like-kind” does not mean the same asset class.
- An investor can sell industrial and buy retail, multifamily, storage, or even oil & gas mineral interests.
- Both equity and debt must be replaced to avoid taxable boot.
- Depreciation recapture is deferred alongside capital gains.
If an investor purchased a warehouse for $1 million and sells it for $2 million, they may face:
- Federal capital gains (up to 20%)
- 3.8% Net Investment Income Tax
- State capital gains tax (varies)
- 25% depreciation recapture
Combined, that tax hit can exceed 25–30%. But a properly structured 1031 exchange allows investors to defer all of it.
For official IRS guidance, see the IRS article on Like-Kind Exchanges.
The 1031 Exchange Timeline: Why Preparation Is Critical
One of the most misunderstood aspects of 1031 exchanges and DSTs is the 1031 exchange timeline.
There are three non-negotiable components:
1. Use of a Qualified Intermediary (QI)
Investors cannot touch sale proceeds. Funds must be held by a Qualified Intermediary. Taking “constructive receipt” immediately disqualifies the exchange.
2. 45-Day Identification Period
From the day the property closes, the investor has 45 days to formally identify replacement property.
Identification rules include:
- The 3-property rule (identify up to 3 properties of any value), OR
- The 200% rule (identify more than 3 properties if total value does not exceed 200% of sale price), OR
- The 95% rule (rare, but useful in scattered-site portfolios)
3. 180-Day Closing Window
The investor must close within 180 days of the original sale.
The 45-day and 180-day clocks run concurrently.
For CRE professionals, this timeline creates urgency. As Dave emphasizes, preparation before closing is critical—lining up replacement strategies, debt structures, and QI coordination in advance.
Deferral vs. Elimination: A Strategic Estate Tool
Dave makes an important distinction: A 1031 exchange defers taxes—it does not eliminate them.
However, under current law, if the investor holds the replacement property until death, heirs receive a step-up in basis, eliminating deferred capital gains.
This makes 1031 exchanges and DSTs especially powerful for:
- Multi-generational wealth transfer
- Long-term hold investors
- Family office strategy
For estate-focused investors, this type of deferral may effectively function as an elimination.
Partial Exchanges, Boot & Refinancing Considerations
Investors are not required to exchange 100% of proceeds.
If an investor sells for $2 million and reinvests $1.8 million while taking $200,000 in cash:
- The $200,000 becomes taxable “boot”
- The $1.8 million remains tax deferred
Cash-out refinancing after acquisition adds complexity. The IRS evaluates intent. If refinancing was pre-planned solely to extract equity, it may trigger scrutiny.
CRE advisors should coordinate closely with CPAs on post-exchange leverage strategies.
721 Exchanges Explained
A lesser-known alternative to traditional 1031 exchanges is the 721 exchange.
Instead of purchasing new property, the investor contributes or sells property into a REIT in exchange for Operating Partnership (OP) units.
Benefits:
- Diversification into institutional portfolios
- Potential liquidity after conversion to common shares
- Continued tax deferral
Key difference from 1031 exchanges and DSTs:
- When REIT shares are eventually sold, taxes are triggered.
- For investors looking to exit management while gaining liquidity flexibility, 721 structures may offer a strategic alternative.
What Are DSTs (Delaware Statutory Trusts)?
A Delaware Statutory Trust (DST) is a legal structure allowing multiple investors to own fractional interests in institutional-quality real estate.
The IRS formally approved DSTs as qualifying 1031 replacement property in Revenue Ruling 2004-86.
DSTs allow:
- Passive ownership
- Institutional asset access
- Professional management
- Pre-structured debt options
- Diversification across asset classes
For investors “retiring from being a landlord,” DSTs often provide a turnkey solution.
How DSTs Solve 1031 Exchange Challenges
DSTs offer four major benefits:
1. Speed Within the 1031 Exchange Timeline
DSTs can often close in under a week, making them ideal for tight 45-day windows.
2. Debt Replacement
Many DSTs are pre-leveraged (typically 40–50% loan-to-value). This helps investors replace required debt without securing new loans personally.
3. Diversification
Instead of concentrating $3 million into one property, investors can allocate across:
- Industrial
- Retail
- Multifamily
- Self-storage
- Hospitality
- Oil & gas interests
4. Immediate Cash Flow
DSTs typically begin distributing income monthly.
Historically, blended returns have ranged:
- 4–6% cash flow
- Additional appreciation potential
Fees, Debt Structures & Risk Considerations
CRE professionals should understand DST economics.
Typical fee structure:
- 8–9% upfront load (built into offering)
- 2–3% asset/property management fees
- 1–1.5% disposition fee
DSTs are:
- Illiquid
- Long-term (often 5–7 year hold)
- Limited in operational flexibility (no capital calls, no refinancing)
Accredited investor status is required (net worth over $1M excluding primary residence).
As with any real estate investment, performance depends on:
- Sponsor quality
- Tenant credit
- Asset management discipline
- Market conditions
Where 1031 Exchange News Is Headed
There is ongoing policy discussion in Washington regarding:
- Potential caps on 1031 exchange deferral
- Changes to depreciation rules
- Estate tax reform
As of today, Section 1031 remains intact.
For current tax law updates, investors should monitor:
- IRS announcements: https://www.irs.gov/newsroom
- National Association of REALTORS® 1031 advocacy updates: https://www.nar.realtor
CRE professionals should proactively stay informed—1031 exchange news can shift quickly during federal budget negotiations.
Final Thoughts: Why 1031 Exchanges and DSTs Matter Now
In today’s commercial real estate environment—characterized by pricing shifts, interest rate volatility, and evolving asset preferences—1031 exchanges and DSTs offer flexibility.
- For active operators: 1031 exchanges preserve equity for scaling.
- For passive investors: DSTs provide diversified, institutional exposure without operational burden.
- For estate planners: Long-term deferral can create generational wealth efficiency.
- The key takeaway for CRE professionals: The mechanics matter. The timeline matters. Intent matters.
When structured correctly, 1031 exchanges and DSTs remain among the most effective capital preservation tools available in commercial real estate.
About Dave Bulger
Dave Bulger, a VP at Perch Wealth, brings more than two decades of experience in the securities and investment industry, with a primary focus on commercial real estate and alternative investments.
He specializes in 1031 exchanges, Opportunity Zone strategies, Delaware Statutory Trusts (DSTs), and other direct investment real estate offerings designed to help investors defer taxes, diversify holdings, and transition into passive structures.
Throughout his career, Dave has worked with nationally recognized commercial real estate investment firms, including Cantor Fitzgerald and NexPoint Securities, where he focused on structuring and distributing institutional-quality real estate investments.
Dave earned his Bachelor of Arts from Harvard University and his MBA from the University of Pittsburgh. He holds FINRA Series 7, 63, and 65 licenses, as well as a Life and Annuity Insurance license.
He resides in Ocean Ridge, Florida, with his wife, Adele, and their three children: George, Heidi, and Maggie.
About Did It Close?
Did It Close? is a commercial real estate podcast hosted by CRE experts and Massimo coaches Bryan McCann and David Dirkschneider.
Together, Bryan and David are highlighting experts in the field while educating fellow CRE professionals and industry insiders about the latest trends and tactics in commercial real estate.
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