Can I identify a DST interest that has not been offered yet?

The 45-day list names real estate, so a building can be described before the trust that will own it is offered

Identification is about property, not paperwork. Reg. section 1.1031(k)-1(c)(3) treats replacement property as identified only if it is unambiguously described in a signed writing, and says real property 'generally is unambiguously described if it is described by a legal description, street address, or distinguishable name'. It does not require the property to be for sale on the day you identify it.

A DST interest goes on the list because of what it represents. Rev. Rul. 2004-86 treats the trust as a grantor trust whose investors are treated as owning undivided fractional interests in its real estate, and holds that real property can be exchanged for an interest in the trust without recognizing gain. That is why the usual entry is the trust's legal name plus its property, as in how to identify a DST interest.

For a trust not yet offered, the name may not exist and the interest certainly does not. What exists is the building. An entry that names the property by address and describes the interest you intend to buy in the trust the sponsor will form to hold it is the closest you can get to an unambiguous description. Whether that is enough has not been tested in a regulation, ruling or case that we found.

Receipt is the harder test: what you buy by day 180 must be substantially the same as what you named

Under Reg. section 1.1031(k)-1(d)(1), identified property counts as received only if you receive it before the end of the exchange period and it 'is substantially the same property as identified'. The examples in the regulation turn on 'basic nature or character': a fence added to identified land does not change it, but buying only the barn and its land out of a larger identified parcel does.

The regulation already accepts entries for property that does not exist yet. Paragraph (e) says an exchange does not fail 'merely because the replacement property is not in existence or is being produced' when identified, ignores usual production changes, and treats substantial changes as fatal. That rule is written for construction, not for forming a trust, so read it as a sign of how the receipt test is applied rather than as permission.

The practical failure points follow from that test. The sponsor may not close on the building, may place a different building in the trust, may launch a portfolio trust whose contents differ from what you named, or may open the offering after your 180 days, or after your return's due date if that comes first. The offering lifecycle explains why sponsors buy the property before they raise money and why launch dates move.

Hypothetical: one pipeline trust and two open trusts on a $900,000 list

Round, hypothetical figures. Your trust closes and $900,000 reaches your intermediary. A sponsor tells you it expects to buy a named industrial building next month and to open a DST for it soon after. You also like two open trusts.

Under the three-property rule in Reg. section 1.1031(k)-1(c)(4) you can identify all three regardless of value. You list the open trusts by legal name and property, and the pipeline building by street address with a description of the interest you intend to buy, and plan $300,000 for each. If the new trust opens on day 70 and the building is the one you named, you fund all three. If the sponsor's purchase collapses, you put the whole $900,000 into the two open trusts, if they still have room, and nothing is lost to boot.

If you had listed only the pipeline trust, the same collapse would leave you with no property to receive and a taxable sale. Rebuild this list with your intermediary and CPA on your own figures and dates before day 45.

Before you name an offering that has not opened, get the sponsor's description and timetable in writing

Ask the sponsor for the address and legal description of the property, whether it is under a signed purchase contract, the expected name of the trust, and the expected opening and closing dates. Ask whether the trust will hold one building or a pool still being assembled, because a pool you cannot name is hard to describe at all.

You still cannot invest until the sponsor offers you the interest with its memorandum and you qualify, and the documents may reveal terms you would not accept, at which point the entry is wasted. Every DST interest, new or open, is illiquid until the trust sells and can return less than you invested. If you would struggle to fill the list otherwise, what happens when an identified property falls through shows how little room there is after day 45.