Investors involved in Delaware Statutory Trusts (DSTs) and 1031 Exchanges face unique tax responsibilities, particularly when investments span multiple states. Ensuring compliance across jurisdictions can be challenging, especially when federal and state tax filing deadlines differ.
Multi-State DST Tax Filing Challenges
DST investments often span multiple states, resulting in non-resident tax filing obligations in each of those jurisdictions. While many states follow federal extension guidelines, two states notably diverge:
- New York
- South Carolina
These states explicitly require separate, state-specific tax extension filings, regardless of any federal or California extensions granted. Neglecting this requirement can result in penalties, interest charges, and potential state audits—putting your DST tax benefits at risk.
Essential Steps for DST Investors
To protect your investments and maintain compliance:
- Identify State Filing Obligations: Verify tax requirements for each state where DST properties generate income.
- File State-Specific Extensions (NY and SC): Timely submit individual state extension forms for New York and South Carolina by their original filing deadlines.
- Make Estimated Tax Payments: Even though the federal wildfire extension applies to both filing and payments, many states only extend filing deadlines. Ensure estimated taxes due are paid on time for states without payment extensions.
- Consult a Tax Expert: Engage with professionals like Exchange Planning Corporation specializing in DST and 1031 Exchanges for tailored guidance on multi-state compliance.
Importance of Compliance
Failing to address state-specific filing rules can lead to costly penalties and risks to your eligibility for 1031 Exchange tax deferral benefits. It’s particularly critical for investors with properties in states like New York and South Carolina, which do not automatically align with federal extensions.
IRS Wildfire Tax Deadline Extensions for LA County
In response to the wildfire damage, the IRS granted an automatic extension for both tax filing and payment deadlines to taxpayers in Los Angeles County. This extension typically delays federal and California tax deadlines by several months, allowing affected individuals additional time for recovery and compliance.However, DST investors owning property across state lines face additional complexity: the federal extension doesn’t necessarily apply to state-level tax filings.
Get Expert Guidance
Navigating these complex multi-state tax requirements, especially amid disaster-related extensions, requires expert guidance. If you have questions about your DST tax filing obligations or need help with state-specific extensions, our professionals are here to help you stay compliant.
