1031 Exchange to a DST Basis Calculation

[Buddy Holmes]

1031 Exchange into a Delaware Statutory Trust (DST) and reporting such on Tax Return

I am trying to visualize just how DST Tax Reporting is done on a 1031 exchange into a DST., and how the Property Basis and depreciation is handled in the exchange process.

As a set up assume:

1) The exchanged property was 100% Long Term Cap Gain and 0% depreciation and o% Loan

2) The DST has a Loan to Value (LTV) of 50% and a 4% Interest only non-recourse loan for 10 years

3) The DST purchase price in $200K of a $20M Apartment Development property or 0.01% share

4) The DST property has been given an 80/20 Improved/Land valuation.

5) The DST projects a 5% annual return

Am I correct in assuming I report on Schedule E::

1) Interest on the 0.01% of the $10M loan, or ~$4K?

2) Is my starting Basis would be 0.01% of $16M or $160K?

3) Or since a proportioned ~$199K of the exchanged purchase is sheltered LTCG, although there was no prior depreciation, is the new property BASIS impacted?

4) Or is my depreciation of one year of the 27.5 year life of that $160K or ~$5.8K?

5) Other Expenses as provided by the DST?

6) An income of $10k?

7) So a net income of less than $0.2K or nearly or totally tax sheltered $10K income?

Now assume at the end of 5 years, the DST sells out for a net $25M

1) My Exchange sales price is $250K.

2) My Exchange Mortgage is still $100K

3) My Basis is down to ~$130K

As I do another 1031 into another DST that is identical to that described above:

1) I invest all $250K for a 0.125% share. I meet the reinvest all or more 1031 criteria.

2) My mortgage is 0.0125% or $125K. I meet the exchange to more mortgage 1031 criteria.

3) My Cash out is $250K - $200K = $50K. All cash is reinvested meeting 1031 criteria

4) My Profit and would be Long Term Capital Gain is $250K-$130K = $80K

5) My property in new DST is 0.125% of 80% of $20M or $200K

6) Is my new Basis would be $200K- $80K = $120K

So my new investment’s Schedule E return reports:

1) Income of $12.5K

2) Interest of $5.0K

3) Depreciation of ~$4.36K

4) Net income before other expenses of $3.14K

And depreciation continues to be less and less an offset...

And then what???

Cheers,

Buddy