Tax Mitigation · Alternative Investments
The 1031 Clock Is Running
$4.2M property under contract. 23 days left to identify replacement property. Roughly $870K in capital gains taxes on the line if the exchange fails.
The Situation
An 18-year hold reaches the closing table
A long-time real estate investor closed on the sale of an apartment property they had owned for 18 years. The sale price was $4.2M; the accumulated capital gain, including depreciation recapture, was approximately $2.6M. Their CPA had flagged a 1031 exchange as the right strategy — but had not connected them with a qualified intermediary or a replacement-property source until well after the closing date.
By the time the investor reached us, 22 days of the 45-day identification window had already passed. They had 23 days left to formally identify replacement property, and 158 days to close on it. The federal and state capital gains exposure if the exchange failed was approximately $870K.
The Complication
Three constraints colliding at once
Identifying a single direct replacement property of comparable scale and quality inside the remaining 23 days was not realistic. Beyond the compressed timeline, two other constraints shaped the picture:
Timeline
23 days remained on the identification window — not enough time to negotiate, diligence, and identify a single direct replacement asset of similar caliber.
Operational fatigue
The investor was clear they no longer wanted to be a landlord. Any replacement strategy needed to move them out of active management, not deeper into it.
Income preservation
The original property had been a meaningful income source. Whatever replaced it had to maintain a comparable distribution profile.
Our Approach
Three DSTs, one exchange
We confirmed first that the qualified intermediary the investor's CPA had engaged was holding the proceeds correctly and that the exchange was structurally intact. From there, we sourced three pre-vetted Delaware Statutory Trust offerings from our institutional sponsor network that could be identified immediately and could close within the remaining window:
Class B multifamily
A four-property apartment portfolio across two Sun Belt markets, with stabilized occupancy and a moderate value-add component.
Single-tenant medical office
A net-leased medical building with 12 years remaining on a triple-net lease to an investment-grade healthcare tenant.
Self-storage portfolio
A multi-property self-storage portfolio in tertiary markets with recession-resistant demand characteristics.
Splitting the exchange proceeds across all three DSTs gave the investor asset-class and geographic diversification that a single direct replacement could not have produced. Identification was filed with the qualified intermediary on day 41 — four days before the deadline — and all three properties were eligible for an immediate close on the investor's preferred timing.
Throughout, we coordinated directly with the investor's CPA and estate attorney so the new structure would integrate cleanly with their longer-term plan, including the eventual step-up in basis available to their heirs.
The Outcome
Closed on day 142, well inside the window
~$870K
in combined federal and state capital gains taxes deferred
Day 142
of the 180-day window — closed with margin to spare
3 properties
across multifamily, medical, and storage — none of them landlord- operated
The investor exited active management without giving up the income profile that had made the original property worth holding for 18 years. Target distributions across the three DSTs landed in the 5.0–5.8% range, comparable to what the relinquished property had been generating in its most recent years.
More importantly, the structure positioned the deferred gain to roll forward into future exchanges or, ultimately, to receive a stepped-up basis under the investor's existing estate plan — meaning the deferred tax liability could potentially be eliminated entirely for their heirs rather than simply postponed.
Why this worked
- The qualified intermediary was already engaged when we got involved, which preserved the structural integrity of the exchange. If the QI step had been missed, no strategy would have recovered the deferral.
- DST offerings allowed identification of multiple replacement properties simultaneously, eliminating the scramble that direct property purchases require under tight 1031 timelines.
- Splitting proceeds across three asset classes built diversification that a single replacement property could not have offered — and did so in a single coordinated transaction.
- Coordinating with the investor’s CPA and estate attorney meant the new structure integrated with their longer-term plan rather than fragmenting it.
Strategies referenced
The instruments used in this scenario are explained in detail elsewhere on our site:
About this scenario
This scenario is a composite based on patterns from multiple actual client engagements. Names, dates, dollar amounts, and identifying details have been changed or omitted; figures shown are representative rather than exact. This is not a recommendation to engage in any specific investment or tax strategy. All investments involve risk, including possible loss of principal. 1031 exchanges and Delaware Statutory Trust investments are subject to specific IRS rules and qualification requirements. Past outcomes do not guarantee future results. Please consult your tax advisor, legal counsel, and qualified intermediary before pursuing any of the strategies referenced.
Facing a similar timeline?
If a 1031 exchange clock is running on your transaction, reach out today. The earlier in the window we are involved, the more options remain open.
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