1031 Exchange for Student Housing

By-the-bed leases and a single leasing season change how a buyer prices the building and when you should close

Student properties are leased by the bed with individual liability, a parent or guardian usually signs as guarantor, and off-campus leases run for 12 monthly installments starting with the fall term, as American Campus Communities described in its final Form 10-K before going private. The same filing states the risk that drives pricing: every property must be entirely re-leased each year during a limited leasing season.

A buyer therefore pays for the next academic year's pre-lease percentage and rental rate, not for trailing income, and the guarantor file is part of the collateral a lender reviews. Listing in the spring with a strong pre-lease and closing after move-in lets you sell proven occupancy; closing in June sells a projection and invites a price adjustment.

The closing date also fixes your exchange clocks under the rules in our deadline guide: a hypothetical August 14, 2026 closing puts the 45-day identification deadline on September 28, 2026 and the 180-day closing deadline on February 10, 2027, so replacement shopping happens during your busiest operating months unless you line it up before listing.

The furniture package is section 1245 property: it is taxed on sale and cannot be carried into the exchange

Furnished units are standard in purpose-built student housing, and since 2018 only real property qualifies for like-kind treatment, as the Form 8824 instructions state plainly. Beds, desks, sofas, appliances and fitness equipment are personal property, so the portion of the price allocated to them is a separate taxable sale whether or not the real estate exchange succeeds.

IRC §1245(a)(1) taxes that gain as ordinary income up to the depreciation you took, and furniture bought after January 19, 2025 will often have been fully expensed under the restored 100% bonus allowance. Hypothetical: a $12,000,000 sale that allocates $400,000 to a fully depreciated furniture package produces $400,000 of ordinary income in the year of sale; the $11,600,000 real-estate price goes to the qualified intermediary and its gain is deferred.

When you buy a furnished replacement, Treas. Reg. §1.1031(k)-1(g)(7) lets you ignore the furniture for the identification rules and the intermediary safe harbor if it is the kind of property normally transferred with the building and worth no more than 15% of the replacement real estate; the regulation's own example is a $1,000,000 apartment building with up to $150,000 of furniture and laundry machines. That is an identification convenience only, and cash spent on the new furniture does not count toward the value you must replace.

Enrollment is the number underwriters check first, and the 2025 peak in high-school graduates is now in the data

The Western Interstate Commission for Higher Education's Knocking at the College Door projections put the number of U.S. high-school graduates at its peak in 2025, followed by a 13% decline through 2041, with 38 states producing fewer graduates by the end of the period and the Midwest and Northeast already shrinking. Total fall enrollment in degree-granting institutions was 21.02 million in 2010 and 18.58 million in 2022, with NCES projecting 20.23 million for 2031 in Digest Table 303.10.

Those national figures hide wide dispersion: flagship and large public universities in growing states can gain students while regional campuses lose them, so a buyer will underwrite the specific institution's enrollment history, its on-campus housing requirements and the supply pipeline within walking distance. A market with one university has a single demand driver, and that is the risk you are being paid to sell.

If you plan to stay in the sector through a passive vehicle, apply the same test to the replacement: the university named in the offering, its enrollment trend, and how many new beds are under construction nearby matter more than the sponsor's projected yield.

Conventional apartments, a student-housing DST or net lease: what each replacement fixes and what it costs

Conventional multifamily removes the annual re-lease cliff because leases roll throughout the year, and it is like-kind to your student property without any allocation issues beyond appliances; our multi-family page sets out how we evaluate those assets as replacements. You give up the higher rent per bed that student properties earn.

Student-housing DSTs exist, and sponsors such as Inland list student housing among their DST property types alongside multifamily, self-storage and healthcare. Under Rev. Rul. 2004-86 the trustee cannot renegotiate leases or make more than minor non-structural modifications, so the sponsor's structure has to handle furniture replacement and the yearly turn through a master lease or property manager whose reserves you should read in the offering.

A net-lease building on a long corporate lease removes turnover entirely, at the cost of tenant concentration; see triple-net for the underwriting points, and the traditional DST and cash-out DST pages for how those structures place your equity.

• Conventional multifamily: same asset class, rolling leases, lower rent per square foot, active management unless placed through a DST.
• Student-housing DST: stays in the sector passively; check the named university, the master lease and the furniture and turn reserves.
• Net lease or diversified net-lease DST: no turnover, income tied to one or several corporate tenants.

Questions a student-housing DST offering must answer before you identify it

Because the trustee's hands are tied after closing, the diligence happens before you sign, and the private placement memorandum should answer each of the points below in numbers rather than adjectives. Where it does not, ask the sponsor in writing before day 45.

We place exchange proceeds with vetted national DST sponsors and can pull the pre-lease history and reserve schedule for a student-housing trust you are considering, but the decision about whether the sector still fits your risk tolerance is yours to make with your advisor.

• Distance to campus, whether the university requires underclassmen to live on campus, and the beds under construction nearby.
• Pre-lease percentage and rate at the sponsor's acquisition versus the prior three fall terms.
• Who signs the master lease, how much cash the master tenant holds, and what happens if it defaults.
• Reserves for furniture replacement and unit turns, and whether they are funded at closing or from cash flow.
• Loan maturity relative to the trust's expected hold, since the trustee cannot refinance.

Sequencing the sale: pre-lease, list, allocate, then let the exchange clocks start

Order the steps so that the taxable furniture sale, the real-estate contract and the identification list are settled before the buyer's deposit goes hard. Your CPA should sign off on the furniture allocation and the recapture estimate before you countersign the purchase agreement, because the allocation is difficult to change afterward.

Engage the qualified intermediary before closing, as required for the safe harbor described on our intermediary page, and identify at least one backup replacement that can close quickly so a slow apartment purchase does not strand the exchange.

• Finish the fall pre-lease, then list with the guarantor file and rent roll ready for lender review.
• Allocate the price between real estate and furniture in the purchase agreement.
• Retain the intermediary and confirm the entity on title will be the buyer of the replacement.
• Identify up to three replacements, or more under the 200% rule, in writing by day 45.
• Close the replacements by day 180 or the tax-return due date, whichever comes first.