DST Sale Proceeds Timing: From Trust Sale to QI Wire and Reinvestment

The clock runs from the trust's closing, so every day between closing and the wire is a day of your 45

Under Reg. section 1.1031(k)-1(b)(2), the identification period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the 45th day; the exchange period ends at midnight on the earlier of the 180th day or the due date, including extensions, of the return for that year. Property is transferred when it is disposed of within the meaning of section 1001(a). A DST owner is treated as owning an undivided share of the trust's property under Rev. Rul. 2004-86, so the trust's closing is your transfer.

That makes the processing time after closing your cost, not the sponsor's. If, hypothetically, your share reaches the intermediary five business days after closing, about a week of your identification period is already gone. Ask the sponsor before closing how many days it expects between the sale and the payment to intermediaries, and plan your replacement as if the money arrives on the last of them.

Set up the intermediary before closing so the money never becomes yours

Under Reg. section 1.1031(k)-1(f), if you actually or constructively receive money in the full amount of the consideration before you receive replacement property, the transaction is a sale, not a deferred exchange, even if you later buy replacement property. The qualified intermediary safe harbor in paragraph (g)(4) prevents that, but only if the arrangement is in place in time.

Paragraph (g)(4)(v) treats the intermediary as entering into the sale agreement when the rights of a party are assigned to it and all parties are notified in writing on or before the date of the transfer. Paragraph (g)(6) requires the exchange agreement to limit your right to receive, pledge, borrow or otherwise obtain the benefits of the money before the exchange period ends, with narrow exceptions. Sign the exchange agreement, give the sponsor the intermediary's details and complete whatever election or direction form the sponsor uses, all before closing. Whether you need an intermediary at all is answered at do I need a QI to exchange into a DST, and choosing one at how to choose a qualified intermediary.

The sequence from closing to reinvestment, step by step

The order below is the usual flow; the timing of each step is set by the sponsor's closing and distribution process and your intermediary's procedures, so ask both for dates.

Interest earned while the intermediary holds your funds is taxed under Reg. section 1.468B-6, generally to the intermediary unless all earnings are paid to you, in which case you report them; see interest on exchange funds.

• Sale notice: engage the intermediary, sign the exchange agreement, send its details to the sponsor.
• Closing day: the trust transfers the property. Day 1 of 45 and of 180 begins.
• Settlement: the lender, closing costs, any disposition fee and the holdback are taken out; your percentage of the rest is computed.
• Distribution: your share is wired to the intermediary, not to you.
• By day 45: a signed written identification is delivered to the intermediary, or the replacement has already closed.
• Reinvestment: the intermediary wires to the replacement's closing, such as a DST sponsor's escrow, as soon as subscription documents are accepted.
• Later: any holdback release goes to the intermediary if the exchange period is still open.

You can reinvest the day the intermediary holds the money, and closing early removes the identification risk

Nothing requires you to wait until day 45. Under Reg. section 1.1031(k)-1(c)(1), replacement property you receive before the end of the identification period is treated as identified. A DST purchase can often close once the intermediary has funds and the sponsor accepts your subscription, which is why many investors move part of the money into a DST quickly and keep the identification open for the rest; see how quickly a DST can close.

If you identify instead, the identification must be in a written document you sign, sent before the end of day 45 to the person obligated to transfer the replacement or another person involved in the exchange, such as the intermediary, under paragraph (c)(2). Name backups within the three-property or 200-percent limits, as explained at how many properties can I identify.

The holdback follows its own timetable, so plan the exchange around the main distribution

Part of your share may be held back for post-closing claims and adjustments. A release that reaches the intermediary before the exchange period ends can still be used toward an identified replacement; one that arrives after the period ends, or is paid to you, is outside the exchange and taxable to the extent of your gain. Ask the sponsor for the holdback amount and expected release date when the sale is announced. The details are at DST wind-down: final distributions.

For the wider decision of where your share goes next, see what happens when a DST sells, and for a sale before the projected hold, when the sponsor sells early.