Can I 1031 into a DST if my property is held in an LLC or trust?

The name on the subscription agreement has to match the name that reported the sale

Sponsors do not decide this; your return does. Rev. Rul. 2004-86 reaches its result by treating a beneficial owner as the owner of a proportionate slice of the trust's real estate, and the owner in question is whichever taxpayer's sale is being deferred.

So the first document to read is not the offering memorandum but the recorded deed on the property you are selling, together with the return that has been reporting its rent. Where those two disagree, fix the mismatch before a contract is signed rather than in the week of closing.

Getting it wrong is not a paperwork problem that can be corrected later. The interest is issued to whoever signs, and a subscription in the wrong name is a purchase by someone who did not sell.

A single-member LLC or a revocable trust leaves you a free choice of names

Both are invisible for federal income tax. A one-member LLC with no classification election is disregarded from its owner under Reg. §301.7701-3(b)(1)(ii), and a revocable living trust is a grantor trust whose grantor is treated as owning the trust assets, the same reasoning Rev. Rul. 2004-86 uses when it applies §§671 and 677 to DST holders.

First American Exchange makes the practical point that a revocable trust is not a separate entity for tax purposes, so title can sit in your name on one side of the exchange and in the trust's on the other.

Use the freedom for lender and estate reasons rather than tax ones, and tell the sponsor which name will appear before the documents are drawn. The neighbouring question is answered in selling in your own name and buying in your revocable trust.

A trust that became irrevocable on a death is a different taxpayer with its own EIN

This is the trap the forums warn about, and it usually surfaces years later. A revocable trust that became irrevocable when a spouse or parent died may have become a separate, non-grantor taxpayer, in which case the trust sold the property and the trust must subscribe.

Neither the trustee personally nor the beneficiaries can take the DST interest in their own names in that situation, because they did not report the sale. The trustee signs, the trust's EIN goes on the paperwork, and the trust reports the income the offering produces.

Where a trust owns the property and the family wants different outcomes for different beneficiaries, the planning belongs before the listing; see trust-owned real estate and 1031 strategies and inherited property in a no-step-up trust.

A multi-member LLC subscribes as one investor unless the members split first

Two or more members and no election means a partnership, and the partnership is the taxpayer. It can subscribe for one interest in its own name and allocate the income among the members on its return, which keeps everyone in the same offering whether they like it or not.

The alternative is to distribute undivided interests to the members before the sale, so each becomes a separate exchanger with a separate subscription. The reason to do that early rather than in the final fortnight sits at §6.03 of Rev. Proc. 2002-22, which withholds rulings where an entity held the property right up to the moment the fractions appeared. Sequencing is worked through in drop-and-swap and swap-and-drop.

Splitting has a cost as well as a benefit. Each subscription is then measured against the sponsor's minimum on its own, which is what DST minimum investment sizes covers, and co-owners each taking their own DST interest works through the mechanics.

Accreditation is tested on the entity, or looked through to the people behind it

A DST interest is sold as a security, so the issuer needs a reasonable belief that the purchaser is accredited. Rule 501(a) sets the categories, and entities have several routes rather than one.

A corporation, partnership or LLC not formed to buy the offering qualifies under (a)(3) with total assets above $5,000,000. A trust qualifies under (a)(7) with assets above $5,000,000 where a sophisticated person directs the purchase, and under (a)(8) any entity qualifies if all of its equity owners are accredited, which the rule expressly allows you to establish by looking through to natural persons.

Individuals behind the entity are measured by (a)(5), a net worth over $1,000,000 excluding the primary residence, or (a)(6), income over $200,000 individually or $300,000 jointly in each of the two most recent years with the same expected this year. Is a DST a security covers who is allowed to sell you one.

The document check to run before you list, not after you close

Every item below is answerable in an afternoon while you still have options, and unanswerable in the last fortnight of a 180-day period. Confirm the conclusions with your own CPA or attorney, since the entity analysis drives both the exchange and the return that follows it.

Breakwater Exchange is a 1031 exchange broker with more than twenty years of experience and over a billion dollars in DST transactions, licensed in all 50 states inside a regulated broker-dealer framework. Tell us how title reads and who signs, and we will tell you what the vetted national sponsors will need from that structure.

• Pull the recorded deed and confirm whether the LLC, the trust or an individual is actually on title.
• Establish whether any trust in the chain became irrevocable on a death, and whether it has its own EIN.
• Collect the operating agreement or a certification of trust, plus written evidence of who may sign.
• Confirm which accredited-investor category the entity or its owners will rely on, and gather the support.
• Check that the entity's tax return history matches the way title reads, because that is what the IRS sees.