877.471.1031
NonTraditional Real Estate
Outside of traditional real estate, there are limited options available for 1031 Exchangers looking to complete their exchange - with a few noticeable exceptions.
In the 1940s–1950s, the IRS and courts began to recognize that certain oil, gas, and mineral rights are real property interests, not just income rights and a series of Revenue Procedures reinforced the fact that oil and gas could qualify as like-kind property for a 1031 Exchange.
In the late 1990s and early 2000s, co-ownership through Tenant-in-Common (TIC) structures became popular among 1031 Exchange investors seeking passive ownership in large, institutional grade properties.
The idea of co-ownership evolved with the emergence of the Delaware Statutory Trusts (DST). DSTs were a new form of co-ownership designed to maintain the tax benefits of a 1031 Exchange while removing the structural inefficiencies of TICs. The IRS formally recognized the DST as a valid exchange option with IRS Revenue Ruling 2004-86.
The DST product has evolved further when combined with a 721 Exchange, ultimately allowing an exchanger to own shares of a REIT.
01
Oil and Gas Rights
Oil and gas rights, when properly structured, can qualify as like-kind property under Section 1031 of the Internal Revenue Code. To be eligible, the rights must represent a real property interest, typically a perpetual mineral interest, royalty interest, or a working interest, rather than a short-term lease or production contract.
These investments can offer monthly royalty payments tied to commodity production, providing a steady stream of passive income while maintaining 1031 tax deferral benefits.
02
Delaware Statutory Trust (DST)
A Delaware Statutory Trust (DST) is a legal entity used to hold title to investment real estate. It allows multiple investors to own fractional interests in large, institutional-grade properties such as apartment complexes, medical offices, or industrial buildings. Each investor holds a beneficial interest in the trust rather than direct ownership of the property. DSTs qualify as “like-kind” property under Section 1031 of the Internal Revenue Code, enabling investors to complete a 1031 Exchange while enjoying the benefits of passive income, professional management, and diversification across high-quality real estate assets.
03
721 UPREIT
A 721 Exchange, often referred to as an “UPREIT” transaction, allows investors to transition from their DST investment into a Real Estate Investment Trust (REIT).
After a holding period of typically two years, the DST is sold to the REIT and proceeds are exchanged for operating partnership units in the REIT through Section 721 of the tax code.
This strategy provides ongoing tax deferral while giving investors the opportunity to diversify across a broader portfolio of properties, benefit from potential liquidity, and eliminate the management responsibilities of direct real estate ownership.
However, it is not possible to exchange the REIT shares upon sale, son once liquidated taxes will become due.