Do I need a qualified intermediary to exchange into a DST?

The ruling that makes a DST interest like-kind puts an intermediary in its own chain of title

The exchangers in Rev. Rul. 2004-86 do not buy their trust interests directly. The ruling's facts state that "B and C exchange Whiteacre and Greenacre, respectively, for all of A's interests in DST through a qualified intermediary, within the meaning of § 1.1031(k)-1(g)."

That detail is doing work. The holding is that each beneficial owner is a grantor of the trust and "considered to own an undivided fractional interest in Blackacre for federal income tax purposes" — real property, not a certificate. Real property is acquired the way real property is always acquired in a deferred exchange.

So the safe harbor you rely on is the ordinary one, not a DST-specific one. What a qualified intermediary is and why a DST interest counts as like-kind are settled elsewhere; this page is about who moves the money.

Constructive receipt can kill the exchange days before you ever see a subscription agreement

Treas. Reg. §1.1031(k)-1(f)(2) treats you as in constructive receipt when money is "credited to the taxpayer's account, set apart for the taxpayer, or otherwise made available so that the taxpayer may draw upon it at any time." A wire that lands in your operating account on Friday is not cured by a Monday subscription.

Paragraph (g)(6) is the flip side: the safe harbor holds only while the agreement says you have no right "to receive, pledge, borrow, or otherwise obtain the benefits of money or other property" before the exchange period ends. Paragraph (g)(4)(ii) makes that express limitation a condition of intermediary status itself.

Sellers reach for the shortcut because a DST feels like buying a fund rather than a property. It is not. Touching or borrowing against exchange funds has the same consequence here as in any other exchange.

Four parties, four jobs, and only one of them is allowed to hold your proceeds

The confusion on this topic is almost always a role problem rather than a rules problem. Each of the four has a defined job and none of them does another's.

Breakwater Exchange sits in the third row. We are a 1031 exchange broker licensed in all 50 states within a regulated broker-dealer framework, with over 20 years of experience and more than a billion dollars in DST transactions, and we work with vetted national DST sponsors.

• The qualified intermediary: signs the exchange agreement before your sale closes, receives the proceeds at closing, holds them, and wires them to the sponsor's escrow at subscription. It does not choose the offering.
• The broker-dealer and its registered representative: source the offerings, document suitability, gather the accreditation evidence Rule 506(c) requires the issuer to obtain, and assemble the subscription package. They never hold exchange funds.
• The sponsor: accepts or rejects the subscription, issues the beneficial interest, and thereafter runs the trust inside the limits the ruling sets out; see who controls a DST.
• Your CPA: computes the gain, prepares Form 8824, and tells you whether the equity and debt you are replacing actually clear. Confirm the figures and the rules with your own CPA or attorney before you sign anything.

The intermediary never takes title to your trust interest — it is assigned in and it wires out

A frequent objection is that a beneficial interest cannot be deeded to an intermediary and back. It does not have to be. Treas. Reg. §1.1031(k)-1(g)(4)(iv) treats an intermediary as acquiring and transferring replacement property when it enters into an agreement for the transfer of that property to you, whether or not it ever holds legal title.

Paragraph (g)(4)(v) supplies the mechanism: "an intermediary is treated as entering into an agreement if the rights of a party to the agreement are assigned to the intermediary and all parties to that agreement are notified in writing of the assignment on or before the date of the relevant transfer of property."

In practice that means the assignment and the written notice must be executed before the funding wire leaves, not tidied up afterwards. Ask for both documents in the closing package and keep them; they are the paper that proves the exchange ran through the safe harbor.

There is no settlement statement, no appraisal contingency and no loan application in your name

What arrives instead is an offering package: the private placement memorandum, the subscription agreement and investor questionnaire, an accreditation representation or third-party verification letter, entity or trust documents if you are subscribing through one, and verified wire instructions for the sponsor's escrow.

Nothing is recorded in your name, because the trust already owns the property and already carries the loan; you are admitted to an existing structure rather than closing a purchase. That is also why a DST's own financing can carry your replacement debt without you qualifying for anything.

Verify the wire instructions by calling a number you already had, not one printed on the document you were emailed. Wire fraud is the one failure mode in this sequence that no tax rule can undo.

One exchange, one Form 8824 — and a statement instead if you buy more than one trust

The Form 8824 instructions are direct: "If during the current tax year you transferred property to another party in a like-kind exchange, you must file Form 8824 with your tax return for that year." Buying a DST does not change the form or the year.

It can change how the form is filled in. Where you transferred or received "more than one group of like-kind properties, or cash or other (non-like-kind) property," the instructions tell you not to complete lines 12 through 18 and to "attach your own statement showing how you figured the realized and recognized gain." That is the normal case for a multi-trust subscription; reporting multiple properties or DSTs walks it through.

From the following January the trust reports your share of income and depreciation to you; how DST income is taxed and reported each year covers what actually arrives in the mail.