Replacement property
1031 exchange alternatives: what to do if you can't find a property
The hardest part of a 1031 is not the paperwork, it is finding the right replacement property before the 45-day clock runs out. If you are struggling, or you want to stop actively managing property, you still have options that defer your gain.
Delaware Statutory Trust (DST)
A DST lets you exchange into fractional interests in institutional-grade real estate with no active management. IRS Revenue Ruling 2004-86 confirms DST interests are like-kind replacement property, which makes them a common way to meet the 45-day deadline, diversify, or absorb leftover proceeds that would otherwise be taxable boot. DST interests are securities sold to accredited investors, and they are passive and illiquid.
721 exchange (UPREIT)
You cannot 1031 directly into a REIT, but a 721 (or UPREIT) exchange can get you there: you contribute property to a REIT's operating partnership in exchange for units, deferring gain. It is an advanced move with trade-offs, typically used to reach diversification and eventual liquidity.
Use a DST as a backup identification
Even if you plan to buy a specific property, many investors identify a DST as one of their allowed identifications. If the primary deal falls through after day 45, the DST is a ready fallback that keeps the exchange, and the tax deferral, alive.
Just pay the tax (or use an installment sale)
Sometimes deferral is not worth it, especially on a small gain. Paying the tax, or spreading it with an installment sale, can be the cleaner choice. Run the numbers with your CPA.
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Frequently asked questions
- What if I can't find a property within 45 days?
- Identify a DST as a backup. Because DST interests qualify as like-kind replacement property, they can preserve your exchange and tax deferral if your primary deal falls through.
- Can I 1031 into a REIT?
- Not directly. A 721 (UPREIT) exchange lets you contribute property to a REIT's operating partnership for units, deferring gain, but it is a different, more advanced structure.
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Educational information only, not tax, legal, or investment advice. 1031 rules and deadlines are strict and can change, so confirm with the IRS and your own CPA or attorney before acting. How we source content.