Is A Delaware Statutory Trust 1031 Exchange Right for You?

Investors who sell their real estate utilizing a 1031 tax deferred exchange may also defer capital gains into the next real estate investment.  Identifying if a Delaware Statutory Trust (DST) may be an investment strategy becomes the question.

By Al DiNicola, AIF®, CEPA ™
September 9, 2023
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC

Ever since becoming involved with Real estate over 40 years ago, real estate has been favored by investors.  In addition to owning a primary residence (many consider an investment) owning investment property has demonstrated the ability to gain certain tax advantages, potential passive income, and potential appreciation.  When there are benefits of owning real estate there are also responsibilities as well.

The §1031 tax deferred exchange has provided many investors with a solid strategy for investments. There is an additional strategy involving a DST that can accomplish the same deferral of capital gains and also remove many of the responsibilities of owning investment real estate.

A Delaware Statutory Trust (acronym DST) may be defined as a separate legal entity created to hold fractional ownership and assets of a trust.  A DST sponsor (typically an experienced real estate company) identifies, researches, and acquires real estate assets.    

The list of potential DST properties can include any commercial property. Commercial properties may include multifamily (apartments), office, self-storage, industrial, student housing, senior housing and even land in some cases. One of the first comparisons may be a DST looks much like a Real Estate Investment Trust (REITs). DSTs qualify for §1031 but REITs do not.

Investors have been able to own real estate in a fractional interest for some time. The DST can enable investors to own in a Trust vehicle (created by the Sponsor) that provides benefits to the investors. The property or asset in the DST is professionally managed and enables the investor to enjoy passive responsibility as well as passive income. Cash investors do make investments in DST. However, many investors utilize a DST when completing a §1031 tax deferred exchange.

DST §1031 Exchanges 20-year track record

Understanding how the §1031 exchange works in conjunction with a DST becomes an educational process.  Once understood some investors see the synergy of the offering. Investors research which sponsors and asset class they may wish to ultimately invest in when they sell their existing property and ultimately close on their replacement property.

The responsibility of the Trust is to “package” the offering. This starts with finding the investment, arranging for debt/financing if applicable, closing on the property, hiring the necessary managers and many other active responsibilities. You as an investor would own an interest in the property (referenced as a fractional interest).

Passive income distributed.

Investors will receive passive income distributed on a regular basis (monthly or quarterly) from the asset or property. This income is considered pass through, and individual owners are taxed at their regular rates.  DST can qualify as a 1031 tax deferred vehicle (following all the guidelines).  The DST process is regulated in structure and function.

“Green Light” §1031 using a DST?

In 2004 DSTs were approved as a recognized alternative to traditional real estate for IRC §1031. Specifically capital gains taxes can be deferred by investors on the sale of certain investment properties. The Internal Revenue Code when issuing Rev Ruling 2004-86 enabled DSTs to be an alternative replacement property when utilizing a §1031 exchange.

Caution- There are Rules & Strict Guidelines

There are timing rules, property rules, and financial rules.  As to the timing there are two important dates or numbers of days.  As with all §1031 exchanges (including using a DST) you must identify potential replacement properties within 45-days of selling your relinquished property.  You must then close on one or more of the properties identified within 180 days of closing on your relinquished property.

The property rules are most lenient. You may hear the word “like kind”. Simply put, this is real estate for real estate. You may do a 1031 exchange selling a farm (excluding the primary farmhouse residence) into an apartment building.

The financial rules have a twist. You need to invest in a replacement property of equal or greater value.  You accomplish this by using all the cash proceeds and replacing any debt that was paid off on the relinquished property sale. This is one of the rules that trips people up.

Triple Options

The DST strategy enables an investor to review more options than what is provided by traditional real estate. DSTs may provide multiple replacement properties by the nature of the DST structure. Proceeds from the sale of the relinquished property maybe split into multiple DSTs because of the low barrier to entry provided by the DST.  The minimum investment typically is $100,000. There are also asset class diversifications as well as geographic.  In a regular §1031 exchange after the 45-day identification period investors may be waiting to close based on a number of contingencies including inspections, mortgage approvals and other issues that may jeopardize the successful closing of the exchange.  With a DST once a property is identified and the investor has their cash with the Qualified Intermediary (QI) closing can occur within a matter of days.

One or more DSTs

Over the years investors have decided on which style of DST investor they prefer to be.  We have investors (utilizing a §1031 exchange) simply doing a one for one exchange.  Selling a $1.5M property and investing into a $1.5M DST. We also have investors who may sell a $1.5M property and exchanging into 5-6 DST in different geographical locations (TN, TX, NC, FL) as well as different asset classes (self-storage, multifamily, etc.).

Top Reasons to consider a DST as 1031 Exchange Replacement

The main reason for doing a §1031 exchange may be to defer capital gains. There are other reasons when deciding if a DST is right for you.

  • Capital Gains deferral may be at the top of the list. This includes the deferral of depreciation recapture as well as deferral of state income tax.
  • Low Risk of Exchange Failure. This may be the biggest benefit to the investor.  DSTs are prepackaged as somewhat sitting on the shelf and may also have replacement non-recourse debt assignability if needed.
  • Mitigating risk becomes an additional focus for investors. Timelines as well as matching required replacement value is nearly eliminated.
  • For an investor looking to be relieved of management responsibilities this is a perfect fit.
  • DSTs are typically very large properties and outside the reach of many individual investors.  DST provides access to institutional grade investments.
  • Diversification cannot guaranty safety. However, DSTs provide a vast selection of assets as well as geographic locations.
  • Distribution from rents received typically are projected monthly.
  • Tax advantaged income.

What is your best option? It depends. Real estate investors have acknowledged a §1031 exchange is a valuable tool. Using a DST as replacement property can provide passive income as well as relieve you of any landlord responsibilities.  If you would like to have a conversation about your options, please reach out to us. We are well experienced at providing educational insight. Give us a call.

DSTs are not for all investors.

The acquisition of a DST is for accredited investors only. Contact your investment adviser for additional details on how a DST may be a solution to your 1031 Exchange and suited for your investment future. For more information on how to properly set up an IRC 1031Tax Deferred Exchange or if you are an accredited investor and would like additional information on a DST contact Al DiNicola at 239-691-8098 or email

This is not an offer to purchase or solicitation to purchase any security, as such be made only through an offering memorandum or prospectus. Investing in securities, real estate, or any investment, whether public or private, involves risk, including but not limited to the potential of losing some or all of your investment dollars when you invest in securities. You should review any planned financial transactions that may have tax or legal implications with your personal tax or legal advisor. NAMCOA, LLC is a Registered Investment Advisor, regulated by SEC (Securities and Exchange Commission). Our corporate office is located at 999 Vanderbilt Beach Road, Suite 200, Naples Florida 34108. Securities Offered through MSC-BD, LLC, Member of FINRA/SIPC. 8215 SW Tualatin -Sherwood Rd, Suite 200 Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.


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Thank you.

About the author

Al DiNicola, AIF, CEPA, specializes in 1031 Exchanges utilizing DST as a viable alternative for accredited investors. He also is well versed in Opportunity Zones and Alternative Real Estate Investments. Mr. DiNicola has more than 40 years of experience in commercial & residential sales and development. Al has extensive experience in real estate land acquisitions, development, investment and real estate securities.

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