Guides
Guides
Real estate investing spans a wide range of structures, from directly owning and managing a single property to holding a passive, professionally managed interest through a pooled vehicle, and each structure carries a different mix of control, liquidity, tax treatment, and management responsibility. Understanding these differences matters most for a Boston, MA investor thinking about 1031 exchange eligibility, since not every real estate investment vehicle is treated as real property for exchange purposes, even when the underlying asset is a building.
Direct ownership, whether of a single rental, a small multifamily building, or a larger commercial asset, gives the investor full control over leasing, management, financing, and disposition decisions, and it is the most straightforward path to 1031 exchange eligibility, since the investor holds actual title to real property used for investment or business purposes. Direct ownership also carries the most active management burden, whether handled personally or delegated to a property manager, and requires the investor to source, underwrite, and finance each acquisition individually.
A real estate investment trust, commonly called a REIT, lets an investor buy shares of a company that owns and operates a portfolio of properties, offering liquidity and diversification that direct ownership cannot easily match, since publicly traded REIT shares can generally be bought and sold on an exchange like any other security. REIT shares, however, are treated as personal property, not real property, for federal tax purposes, which means REIT shares do not qualify as either relinquished or replacement property in a 1031 exchange, regardless of how much real estate the REIT itself owns underneath the share structure.
For investors who want 1031 eligibility without the management burden of direct ownership, a Delaware Statutory Trust, structured according to Revenue Ruling 2004-86, or a tenancy-in-common arrangement, structured according to Revenue Procedure 2002-22, can both qualify as like-kind real property for exchange purposes. Delaware Statutory Trust interests are securities offerings, and we do not sell securities; any discussion of a Delaware Statutory Trust as part of an investment strategy is limited to an introduction to a licensed securities provider. A tenancy-in-common interest, by contrast, represents direct fractional ownership of the real property itself rather than a beneficial interest in a trust, and it does not carry the same securities law considerations, though it typically requires unanimous consent among co-owners for major property decisions.
Real estate syndications and many online crowdfunding platforms pool investor capital into a limited liability company or limited partnership that then acquires the underlying property, with investors receiving an equity interest in the entity rather than direct title to real property. Partnership and LLC interests are explicitly excluded from 1031 exchange treatment under the statute itself, since Section 1031 requires an exchange of real property, not an exchange of an entity interest, regardless of how much real estate the entity holds. This is one of the most common points of confusion for Boston, MA investors researching passive real estate options, since syndications and DSTs are often marketed alongside each other but carry materially different 1031 eligibility.
Choosing among these structures generally starts with deciding how much direct control and active management the investor wants, followed by confirming whether 1031 eligibility is a priority for the specific capital being invested. An investor exchanging exchange proceeds from a relinquished property generally needs to stay within direct ownership, DST, or TIC structures to preserve deferral, while an investor deploying new, non-exchange capital has the full range of options, including REITs and syndications, available without that constraint. The site's Fractional Real Estate Investing explainer goes deeper into comparing DST and TIC structures specifically, while the Real Estate Syndication Explained explainer covers why syndication equity generally falls outside 1031 eligibility even when the underlying property would otherwise qualify.
Common replacement classes
Direct ownership of investment real property, along with properly structured Delaware Statutory Trust interests and tenancy-in-common interests, generally qualify as like-kind real property. REIT shares, and equity interests in syndication or crowdfunding LLCs and LPs, generally do not qualify since they are treated as personal property or partnership interests rather than real property.
REIT shares are treated as personal property, specifically securities, for federal tax purposes, even though the REIT itself owns real estate. Section 1031 requires an exchange of real property held for investment, and a share of stock in a company does not meet that standard regardless of the company's underlying assets.
A Delaware Statutory Trust, structured under Revenue Ruling 2004-86, can qualify as like-kind real property for exchange purposes. A syndication typically issues an LLC or LP equity interest, and partnership interests are explicitly excluded from 1031 treatment under the statute, regardless of how the underlying property would be classified if owned directly.
No. Only capital coming from a 1031 exchange needs to stay within eligible structures such as direct ownership, DST, or TIC interests. New, non-exchange capital can be deployed into REITs, syndications, or crowdfunding platforms without that constraint, though those vehicles carry their own risk and liquidity considerations.
No. A tenancy-in-common interest, structured under Revenue Procedure 2002-22, represents direct fractional ownership of the real property itself rather than a beneficial interest in a trust, so it does not carry the same securities law considerations as a Delaware Statutory Trust, though it typically requires unanimous co-owner consent for major decisions.
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