Reinvestment in Alternative Real Estate
Overview
This article addresses two structures sometimes presented during section 1031 planning. Neither label guarantees tax treatment, suitability, liquidity, or a particular return. The actual documents and facts control.
Botway does not provide tax, investment, or securities advice. Use an independent tax adviser, attorney, and appropriately licensed investment professional.
What the IRS Authorities Actually Say
IRS Revenue Ruling 2004-86 addresses the particular Delaware statutory trust described in the ruling. It concludes that a taxpayer may exchange real property for an interest in that trust without recognizing gain or loss under section 1031 if the other section 1031 requirements are satisfied. It does not say every investment called a DST qualifies.
IRS Revenue Procedure 2002-22 describes conditions under which the IRS ordinarily will consider a private-letter-ruling request concerning undivided fractional interests in rental real property. Under that procedure, the co-owners hold title as tenants in common and the number of co-owners is limited to no more than 35 persons. The procedure is not a blanket approval of every TIC offering.
Review Protocol
Have the tax adviser compare the proposed interest and governing documents with the IRS authority before it is identified or acquired as replacement property. Have a securities professional or securities attorney determine which offering and investor rules apply; do not assume that every DST, TIC, or syndication has the same exemption or eligibility standard.
Independently review sponsor history, conflicts, debt, reserves, fees, distribution assumptions, transfer limits, exit provisions, and loss scenarios. Use the offering's actual documents for minimum investment, fees, hold period, liquidity, and projected return; this article supplies none of those figures.
Sources
- Internal Revenue Service, Revenue Ruling 2004-86, fetched and read 2026-08-07.
- Internal Revenue Service, Revenue Procedure 2002-22, fetched and read 2026-08-07.
This is general information, not legal, tax or accounting advice. Every situation is different. Talk to a licensed attorney, accountant or tax professional before you act.
List for free, or go full service for 1%.
Use this playbook yourself, or let us run pricing, marketing and negotiation.