Most investors think 1031 Exchange planning begins when they decide to sell an investment property. However, David Moore and Tom Moore, CEO and President of Equity Advantage, believe that’s often too late. By the time a property is listed or escrow opens, many of the decisions that shape a successful transaction may have already been made.
Those decisions extend well beyond whether to complete a 1031 Exchange. Investors may also be comparing a Tenant in Common (TIC) investment with a Delaware Statutory Trust (DST), considering whether a rental property could eventually become a primary residence, planning for multiple owners with different goals, or trying to understand their potential tax exposure. Although those may seem like separate issues, David and Tom view them as parts of the same planning process.
Throughout more than three decades of helping investors complete Exchanges, they’ve found that the strongest outcomes often begin with planning before a property is ever listed for sale. Asking the right questions early gives investors time to evaluate ownership structure, understand potential tax consequences, and determine which strategy best supports their long-term goals. Whether the discussion involves a 1031 Exchange, a mixed-use property, partnership planning, or choosing between a TIC and a DST, David and Tom believe the best planning begins well before the property reaches the market.
Every Sale Starts Long Before the Closing Table
Why Tax Planning Has to Start Early
The question David and Tom hear most often from investors is simply, “When should I call?”
Many investors aren’t sure when they should begin planning and end up waiting until after they’ve accepted an offer or opened escrow, which is often far too late. To make sure you have the most flexibility possible, David and Tom believe planning should begin while you’re still thinking about selling, long before any concrete decisions are made.
At that point there is still time to review ownership structure, estimate potential tax exposure with your CPA, discuss whether a 1031 Exchange fits your plans, and address issues that become much harder to solve once the transaction is under contract.
What Questions Need to Be Considered Before a Sale?
Many investors assume the first decision is whether to complete a 1031 Exchange. However, David and Tom encourage investors to think about what they’re ultimately trying to accomplish before discussing replacement property or Exchange deadlines.
They typically begin by asking investors questions such as:
- Will this property eventually be exchanged or sold outright?
- Is the goal to generate retirement income instead of appreciation?
- Will the property remain in the family?
- Are business partners expecting to separate ownership?
- Is any portion of the property used as a residence or business?
Every answer affects how the property should be owned, whether a 1031 Exchange is appropriate, and what planning opportunities remain available before the sale.
This is why David often describes Equity Advantage as a facilitator rather than simply an accommodator. An accommodator steps into a transaction after most of the important decisions have already been made. Whereas a facilitator becomes involved early enough to help investors evaluate ownership, tax consequences, and long-term objectives before escrow deadlines limit how the property can be structured.
Just as importantly, early planning sometimes reveals that an investor doesn’t need a 1031 Exchange at all.
Considering Tax Exposure
Another important question David and Tom encourage investors to answer before selling is, “Is there actually tax exposure?”
Many investors assume a 1031 Exchange is the obvious next step after selling investment property. However, David and Tom encourage investors to understand their tax position first.
They may discover:
- Whether they have tax exposure at all.
- Whether only part of the property belongs in an Exchange.
- Whether another tax strategy may be a better fit.
Those questions are much easier to answer before a purchase agreement has been signed than while everyone is racing toward closing.
David frequently reminds investors that “the only dumb question is the one that isn’t asked.” Asking those questions early gives investors time to work with their CPA, attorney, and Exchange professional before deadlines begin narrowing their choices.
He also offers another piece of advice that applies well beyond real estate investing: pay experienced professionals for their expertise before a transaction begins, not after important decisions have already been made. Working with knowledgeable tax and legal advisors early can uncover basis questions, ownership issues, mixed-use planning opportunities, or situations where a 1031 Exchange isn’t necessary at all, giving investors time to adjust their strategy before those opportunities disappear.
One Property Can Create Multiple Tax Questions
Mixed-Use Conversions and Section 121 Exclusion
One question that David and Tom received perfectly illustrated why they encourage investors to begin planning early.
An investor wanted to exchange a rental property into a new home situated on ten acres. Part of the acreage was leased to a farmer, and the investor wanted to know whether that income-producing portion could be included in the 1031 Exchange.
David and Tom didn’t see one question. They saw several. Before they could answer, they first needed to understand:
- Which portion will remain investment property?
- Which portion will become the primary residence?
- How should the purchase price be divided between those uses?
- Will the investor continue holding the investment portion?
What started as one question quickly became two separate planning discussions: one about the future home and another about the investment property.
David and Tom explain that mixed-use properties often need the residential and investment portions to be treated separately. That’s why they encourage investors to involve both their Exchange company and their tax professionals before closing instead of trying to sort everything out afterward.
The example also highlights one of David’s broader observations about today’s investing environment: online searches and AI tools may provide technically correct information, but they don’t know the details of your situation. The way you own the property, how you plan to use it, how the property is financed, your tax basis, and whether only part of the property qualifies as investment real estate can all change the answer.
What “Like-Kind” Actually Means
The phrase like-kind continues to confuse many investors.
Some assume they have to replace one type of property with another similar property. If they sell an apartment building, they think they need to buy another apartment building. If they sell vacant land, they assume they have to purchase more vacant land.
David explains that this has never been how like-kind treatment works.
For a 1031 Exchange, like-kind generally means the property is being held for investment. It doesn’t mean you have to buy the same type of real estate you just sold.
Understanding that gives investors much more flexibility. Someone who has spent years focused on appreciation may decide the next property should generate retirement income instead. Another investor may choose a completely different type of property because it better fits where they want their portfolio to go.
That’s why David and Tom spend so much time discussing an investor’s goals before discussing replacement property. The goal isn’t simply to replace one investment with another. It’s to determine where the investor wants to go next and choose a property that helps get them there.
1031 Exchange Holding Period Rules
Questions about holding periods create just as much confusion.
David and Tom regularly hear questions about whether a property has to be held for one year, two years, or even five years before a 1031 Exchange. Tom explains that much of the confusion comes from different tax rules being mixed together.
Guidance for second homes, related-party transactions, and later converting investment property into a primary residence all involve different considerations, but they’re often treated as if they apply to every Exchange.
Instead of focusing on an arbitrary timeline, David and Tom encourage investors to focus on questions such as:
- Why was the property purchased?
- How has it actually been used?
- What role is it expected to play going forward?
Those questions provide a much better starting point than relying on generalized timelines that may not apply to your situation.
Cash Out vs. Taxable Gain
“If I walk away from the sale with $500,000, am I paying tax on $500,000?”
David says that’s one of the most common questions investors ask, and the answer is usually no.
The amount of cash you receive at closing doesn’t determine your taxable gain. Many investors assume it does, but the size of your check and the amount of your taxable gain are two different things.
That’s why one of the first questions David and Tom ask isn’t, “How much cash are you getting?” It’s, “What’s your basis?”
For many investors, basis begins with the purchase price, but it doesn’t stay there. Over time, it can change based on factors such as:
- Capital improvements
- Depreciation
- Previous 1031 Exchanges that carry basis into the replacement property
That’s why David encourages investors to understand their basis long before the property is listed. If you don’t know your basis, it’s hard to know whether you’ll owe significant taxes, whether a 1031 Exchange makes sense, or what other opportunities might be available.
He also says it’s common for investors to know exactly how much cash they’ll receive from a sale while having only a rough idea of their basis. After years of ownership, multiple CPAs, previous 1031 Exchanges, or inherited records, that’s understandable. But basis, not the size of the check, is what helps determine your tax position.
What Happens When Owners Want Different Things?
Very few people buy investment property expecting to own it forever. Retirement approaches, families grow, and investment priorities change. The ownership structure that makes sense when you buy a property may not provide the same flexibility years later.
That’s why David encourages investors to think carefully about how they own a property from the very beginning.
Imagine two people buy a property together. Years go by. Ownership passes to children and grandchildren. Before long, what started with two owners becomes five, then ten, then twenty, and everyone has different goals.
Some may want to continue holding the property, some may want to complete a 1031 Exchange, and others may simply want to sell, pay the tax, and move on.
Over time, it’s common for owners to want different things. The challenge is trying to sort those decisions out after the property is already under contract.
By then, owners may be trying to:
- Dissolve an LLC
- Convert ownership into tenants in common
- Revise purchase agreements
- Separate partners who want different outcomes
- Coordinate multiple Exchange strategies
That’s where things can become much more complicated than many investors expect. Changing ownership isn’t as simple as signing a new deed. Tax planning, legal documentation, financing, purchase agreements, and the ownership structure all need to work together.
That’s why David encourages investors to think about how they’ll eventually exit a property while they’re acquiring it, when they still have the greatest flexibility. Reviewing ownership from time to time gives investors the opportunity to adjust as their goals change instead of trying to solve everything after a transaction is already underway.
Is a TIC or a DST Better?
“Is a TIC better than a DST?”
David says the better question is, “What are you trying to accomplish?” Someone who wants to renovate a property, make operating decisions, and stay actively involved may choose a different ownership structure than someone looking for passive ownership and professional management. Once you know what you’re looking to accomplish with the property, you can choose the ownership structure that best fits your goals.
A Tenant in Common (TIC) allows multiple investors to own direct interests in the same property. David and Tom often discuss TICs in the context of value-add investments where owners plan to improve, renovate, or reposition a property while remaining actively involved.
A Delaware Statutory Trust (DST) works differently. Investors purchase interests in professionally managed real estate and participate as passive owners while someone else manages the property.
David and Tom generally describe the two structures this way.
A TIC is often associated with:
- Direct ownership
- Smaller ownership groups
- Value-add opportunities
- Active investor involvement
A DST is often associated with:
- Passive ownership
- Professionally managed property
- Stabilized real estate
- Less day-to-day involvement
Once investors have chosen the ownership structure that best fits their goals, David encourages them to think about what comes next. Every ownership decision has long-term implications, so it’s important to think not just about the investment you’re making today, but also where you want it to take you in the future.
For example, some investors choose to spread their Exchange proceeds across multiple DST offerings invested in different property types or geographic regions. If those DSTs sell at different times, all of the proceeds may not become available when the investor wants to complete another 1031 Exchange. So before making that investment, it’s worth asking whether that strategy still supports where you want to be years from now.
Every Question Leads Back to Planning
Whether you’re estimating your taxable gain, thinking about future ownership, or deciding between a TIC and a DST, David and Tom encourage investors to have those conversations before a property goes on the market. Starting early gives investors time to understand their goals, consider their options, and choose the strategy that best fits where they want to go next.
If you’re considering selling investment property, contact Equity Advantage before your property goes on the market to explore your options and develop a strategy that supports your long-term goals.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
FAQs About 1031 Exchanges, TICs, DSTs, and Mixed-Use Properties
When should I start planning a 1031 Exchange?
David Moore and Tom Moore recommend starting the planning process while you’re still considering selling your investment property. Early planning gives you time to review your ownership structure, estimate your potential tax exposure with your CPA, determine whether a 1031 Exchange is the right strategy, and address issues before your property goes under contract.
Does the amount of cash I receive at closing determine how much tax I’ll owe?
No. The amount of cash you receive at closing and your taxable gain are two different things. Your tax position depends on factors such as your property’s basis, depreciation, capital improvements, and previous 1031 Exchanges, not simply the size of your check.
Can I exchange into a property that will become my future primary residence?
Possibly. Some properties include both investment and residential uses. Those situations require careful planning to determine how each portion of the property will be treated, which is why investors should involve both their Exchange company and tax professionals before closing.
What’s the difference between a Tenant in Common (TIC) and a Delaware Statutory Trust (DST)?
A TIC gives investors direct ownership interests in real estate and is often associated with more active ownership and value-add opportunities. A DST is generally designed for passive ownership in professionally managed real estate. The right choice depends on your investment goals rather than one structure being universally better than the other.
