1031 Property Types

Commercial Real Estate

Commercial real estate encompasses a broad range of investment properties, including office and industrial buildings, medical centers, apartments, educational institutions, hotels and motels, retail stores and shopping malls, mobile home parks, and vacant land.

Investors interested in leveraging a 1031 exchange may include a commercial property in the trade as long as the property is used as an investment and meets the definition of like-kind. Often, clients use a 1031 exchange to diversify the assets or location of properties in their portfolio. For example, investors commonly trade up, meaning they sell a real estate asset to buy a larger one, such as trading from a fourplex to a 10-unit apartment building. Additionally, they might rely on a 1031 exchange to trade between asset classes – a common strategy for clients whose investment objectives have changed. For example, an investor may trade from a shopping center to a single-tenant triple-net asset to reduce management responsibilities and access passive income.
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Delaware Statutory Trust

A Delaware Statutory Trust (DST) is a real estate ownership structure that permits investors to purchase a fractional interest in real estate. DST sponsors identify potential investors to purchase an interest in a property. They use the capital raised to invest in assets that meet the financial objectives of the DST. Depending on the strategy, a DST can acquire properties across all asset classes in the United States.

Per Internal Revenue Code Section 1031, investments in DSTs qualify for a 1031-exchange. A DST is one of the few partnership structures that clients can trade while deferring capital gains. Commonly, investors who want to reduce management responsibility and seek true passive income opt for a DST. Plus, DSTs provide additional benefits for real estate investors, including the ability to access institution-quality assets while leveraging financing obtained by the DST sponsor. DSTs also offer debt obligation management – enabling investors to identify how much debt they want to leverage on the investment – a unique feature required for 1031 exchanges.
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Oil, Gas, and Other Rights

Investments in oil, gas and other rights qualify as like-kind when the investor holds either working interest or mineral royalty interest. A working interest indicates that the investor is a partial owner in a mineral lease or producing well, providing access to a percentage of any profits. However, the investor is also responsible for a portion of the operating costs. On the other hand, mineral royalty interest means that the investor can receive a percentage of the profits from production. It differs from a working interest because the investor is not responsible for production costs.

Both investment opportunities allow investors to own real property, per Section 1031, that is entirely passive, with no management or operational obligations. Instead, a team of qualified professionals manages the investment, and the fractional owners receive monthly revenue distributions. Investments in oil, gas and other rights are primarily reserved for accredited investors and allow them to truly diversify their portfolios.
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Income Rental Property (IRC)

Not all residential properties qualify for a 1031 exchange – only those held for investment purposes, also known as income rental property, can be used in a trade. A primary residence, vacation home, or second house does not qualify.

Many investors hold multiple residential assets in their portfolios as investment properties, and a 1031 exchange can be used to trade into or out of these assets. Investors often trade residential assets to restructure their investment portfolio to better target their financial objectives. Due to the high-management responsibility involved in residential properties, investors often sell them and trade them into single-tenant retail assets or DSTs to reduce their involvement. On the other hand, those looking for a higher return may opt to acquire more residential units, trading out of lower return investments. However, those looking to leverage a residential asset in a 1031 exchange need to confirm that the asset meets the requirements outlined by the IRS. Trades that lie outside these guidelines are taxable.

Is Your Property Eligible for a 1031 Exchange?

Eligible Properties
Single-family rentals
Offices/commercial properties
Multifamily rentals
Raw land
Leasehold interests of 30 years or more
Fractional interest via a tenant in common (TIC) and Delaware Statutory Trust (DST)
Properties NOT Eligible
Personal residences
Real estate investment trusts (REITs)
Construction projects or fix-ups/flips for resale
Interests in partnerships

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Securities offered through Emerson Equity LLC, member FINRA / SIPC. This is not an offer to buy or sell securities. Securities investing carries an inherent risk of loss of some or all of the principal invested. We are not tax professionals. You should always discuss your investments with a tax professional prior to investing. Securities are sold only in those states where Emerson Equity LLC is registered. Perch Wealth LLC and Emerson Equity LLC are not affiliated. COMPANY and Emerson Equity LLC do not provide legal or tax advice. Securities offered through Emerson Equity LLC Member FINRA / SIPC and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein.
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Perch Financial LLC and Emerson Equity LLC do not provide legal or tax advice. Securities offered through Emerson Equity LLC Member FINRA/SIPC and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure:


  • There is no guarantee that any strategy will be successful or achieve investment objectives;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood, and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward-looking statements are never an assurance of future results.

Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read, and understand all the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.

Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss.

NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by Perch Financial LLC, Emerson Equity LLC, or any affiliate, or partner thereof. Perch Financial LLC does not warrant the accuracy or completeness of the information contained herein.