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What is a passive §1031 Tax Deferred Exchange?

A passive §1031 Exchange is when the investor purchases the replacement as a professionally managed, securitized, institutional real estate property(s) within the IRS guidelines to defer taxes. The investor no longer preforms the day-to-day duties of ownership and management. These tasks are the responsibility of the institutional real estate investment firm (sponsor). Typically, the sponsor structures the exchange as a Delaware Statutory Trust. The IRS issued the Revenue Ruling 2004-86 that sets forth parameters which a Delaware Statutory Trust must meet in order to qualify as a viable tax deferring vehicle.