A clear explanation of how a 1031 exchange and a Delaware Statutory Trust (DST) can help you defer taxes, simplify ownership, and remove the burden of managing another property.
Many investors begin by asking, “How does a 1031 exchange work and do I have to stay active as a landlord?” Traditionally, a 1031 exchange allows you to sell certain types of real estate and reinvest the proceeds into another property — but it also means taking on the responsibility of finding, purchasing, and managing that new property.
However, a 1031 exchange doesn't have to lock you into being a landlord again. When paired with a Delaware Statutory Trust (DST), you can complete a compliant 1031 exchange without taking on the work of managing real estate yourself. This structure maintains the benefits of tax deferral while shifting the ownership experience from hands-on to fully passive.
A 1031 exchange (named after Section 1031 of the Internal Revenue Code) allows you to sell an investment property and reinvest the proceeds into another investment property without recognizing capital gains at the time of sale.
A Delaware Statutory Trust (DST) is a legal structure that allows multiple investors to own fractional interests in large, institutional-quality real estate. Rather than purchasing and managing an entire building, investors acquire a portion of a professionally managed property.
This creates a tax-efficient, passive ownership experience.
A DST is especially appealing for those who want passive ownership. Properties inside the DST are managed by experienced real estate teams — investors do not make day-to-day decisions.
DSTs are generally most appropriate for investors expecting $250,000 or more in net proceeds from the sale of their property.
Defer capital gains taxes on the sale of investment real estate.
Invest in high-quality commercial real estate typically unavailable to individual buyers.
Eliminate landlord responsibilities with expert oversight.
Receive tax-efficient distributions without managing the property.
DST interests can make it easier for heirs to divide and manage inherited assets.
To successfully complete a 1031 exchange, a Qualified Intermediary (QI) must be engaged before closing on the sale of your property. If the property is sold first and a QI is not in place, the IRS treats the sale as a taxable event and the opportunity for a 1031 exchange is lost.
Talk with your advisor about the tax implications of selling your investment property and whether a DST may be appropriate for your situation.
If they don’t mention DSTs, give us a call.
