I am not an accredited investor. What are my 1031 replacement options?

Check whether you are accredited before ruling anything out

Rule 501(a) treats a natural person as accredited if their net worth, alone or with a spouse or spousal equivalent, exceeds $1,000,000, or if their income exceeded $200,000 individually or $300,000 jointly in each of the two most recent years with a reasonable expectation of the same this year.

Only the primary residence is excluded from net worth, and mortgage debt on it is generally excluded too, up to its value. The equity in rental property counts. Rule 501(a)(10) also accepts holders of professional certifications that the SEC has designated by order.

How sponsors verify status and what documents they ask for is covered in DST accredited investor rules.

Every form of directly owned real estate is open to you

Section 1031 asks only that you exchange real property held for investment or business use for like-kind real property. It says nothing about investor wealth. A rental house, a small apartment building, a single-tenant net-leased store, raw land or a commercial condo all qualify if you hold them for investment.

You can also co-own. An undivided tenant-in-common share, held directly on title with relatives or partners, is real estate rather than a security you buy from a sponsor. The IRS's ruling guidelines in Rev. Proc. 2002-22 describe co-ownership that is not treated as a partnership, including a limit of 35 co-owners; see buying a replacement with a partner.

What you cannot use is an interest in an LLC or partnership that owns the property, because Reg. section 1.1031(a)-3(a)(5) lists partnership interests, stock and certificates of trust among the intangibles that are not real property for section 1031.

• Another rental or small multifamily building, managed yourself or by a property manager you hire.
• A single-tenant net-leased building, where the tenant carries most operating costs under the lease.
• Land held for investment, which needs no management but produces little or no income.
• An undivided share of a larger building, co-owned directly on title with people you choose.
• Several smaller properties instead of one, within the identification limits.

Some private offerings can accept you; the Form D tells you which

Rule 506(b) lets an issuer sell to no more than 35 non-accredited purchasers in any 90-day period, each of whom must have "such knowledge and experience in financial and business matters" to evaluate the investment, alone or with a purchaser representative. Rule 502(b) then requires the issuer to give those buyers specified disclosure before the sale.

Item 14 of the SEC's Form D asks whether securities "have been or may be sold to persons who do not qualify as accredited investors" and how many have bought. Look up the offering's Form D on EDGAR before asking a sponsor.

If Item 14 says no, the offering is closed to you. That is a securities rule chosen by the issuer, not a tax rule.

Worked example: a rental seller who is just under the line

Hypothetical, round numbers. You and your spouse own a home worth $600,000 with no mortgage, a rental with $700,000 of equity, and $250,000 in retirement and brokerage accounts. Excluding the home, your joint net worth is $950,000, and your joint income is $180,000.

You are not accredited, and the home's value cannot be counted. The $700,000 can still go into a $1,000,000 fourplex with a $300,000 loan, or into two net-leased properties, with the exchange fully deferred if the value and debt targets are met.

If the rental's equity were $800,000, the same household would cross $1,000,000 and be accredited. Ask your CPA to confirm the figures as of the subscription date; run your own numbers with your CPA.

Our direct title security is real estate you own outright, sold through an offering

Our direct title security puts a single property, sourced between $250,000 and $500,000, in a single-member LLC that you own 100%, with its own title and CUSIP, professional management and a triple-net lease. It is delivered with a private placement memorandum, a supplement and a subscription agreement.

Because it is offered through those documents, ask whether a particular offering is open to non-accredited purchasers before relying on it. Comparing direct ownership with a trust is covered in DST vs NNN property.