How Delaware Statutory Trusts Qualify for 1031 Exchanges

We con­tin­ue our com­mit­ment to investor edu­ca­tion. This post will focus on one of the pri­ma­ry rea­sons investors choose Delaware Statu­to­ry Trusts. Based on investor feed­back it is their abil­i­ty to qual­i­fy as replace­ment prop­er­ty in a 1031 exchange.

Jan­u­ary 12, 2026

By Al DiNi­co­la, AIF®
1031 Tax Deferred Exchange Spe­cial­ists & DST Advi­sor
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

The Sec­tion 1031 Exchange Chal­lenge

§1031 has been in place for over 100 years (with a few mod­i­fi­ca­tions from time to time). A 1031 exchange allows investors to defer cap­i­tal gains tax­es by rein­vest­ing pro­ceeds from the sale of real estate into “like-kind” prop­er­ty. How­ev­er, investors must fol­low strict require­ments. One of the more stress­ful tasks is to iden­ti­fy poten­tial replace­ment prop­er­ties with­in 45 days. These prop­er­ties need to be sub­mit­ted to and accept­ed by the qual­i­fied Inter­me­di­ary (QI) who needs to be part of the exchange. Once the final list is sub­mit­ted pri­or to end of the 45-day peri­od no oth­er prop­er­ties may be iden­ti­fied. The next stress­ful task may be the abil­i­ty to close on replace­ment prop­er­ties with­in 180 days total time (135 days form end of 45-day peri­od). Investors may be faced with arrang­ing financ­ing, per­form­ing inspec­tions and oth­er tasks to arrange a suc­cess­ful clos­ing. The oth­er require­ments are finan­cial. Investors need to replace both val­ue and debt. In addi­tion, use all the cash pro­ceeds from the sale.

Time may not be on your side. Find­ing suit­able prop­er­ties under these strict time­lines can be dif­fi­cult. This may be stress­ful espe­cial­ly for investors exit­ing large or high­ly appre­ci­at­ed assets. In addi­tion, the replace­ment of debt (or pro­vid­ing fresh cash) may com­pli­cate the exchange process espe­cial­ly if the investor needs to qual­i­fy for the replace­ment loan. We will review debt replace­ment in future posts.

IRS Approval of DSTs

It has been a lit­tle over 20 years since DST were approved. In Rev­enue Rul­ing 2004–86, the IRS ruled that a DST investor’s ben­e­fi­cial inter­est is treat­ed as direct own­er­ship of real estate. DST inter­ests are not con­sid­ered secu­ri­ties or part­ner­ship inter­ests (Although DST require Reg­u­la­tion D (b or c) fil­ing by the offer­ing sponsor.DST prop­er­ties qual­i­fy as like-kind real estate for §1031 and §1033 pur­pos­es.

This rul­ing opened the door for wide­spread DST usage in tax-deferred exchanges. How­ev­er, DSTs are not rec­om­mend­ed for all investors.  DSTs are only offered to accred­it­ed investors. There are also suit­abil­i­ty con­cerns that all DST advi­sors review with investors. Advi­sors who deal with DSTs as a nor­mal course of busi­ness are best suit­ed to assist investors.

Why DSTs Work So Well for Exchanges

DSTs offer sev­er­al exchange-friend­ly advan­tages:

• Pre-pack­aged, insti­tu­tion­al-qual­i­ty prop­er­ties. (We always mon­i­tor over 50–60 DSTs so that we are pre­pared to assist investors).
• Abil­i­ty to invest any dol­lar amount, includ­ing left­over exchange funds. This may assist investors who need to replace remain­ing cash left over (ref­er­enced as boot) from a tra­di­tion­al exchange.
• No need to secure new financ­ing (debt is assigned based on the DST Loan to Val­ue (LTV) and as a per­cent­age of the cash equi­ty the investor acquires.
• Spon­sor-arranged, non-recourse debt. The DST is the bor­row­er.
• Faster clos­ing com­pared to indi­vid­ual prop­er­ty pur­chas­es. DST may close in a mat­ter of days, enabling investors to put invest­ment dol­lars to use.

There are a few rea­sons why DSTs are espe­cial­ly valu­able for investors. Investors may be con­cerned with failed exchange risk. This may be as a result of dead­line pres­sure as well as dif­fi­cul­ty replac­ing debt. There are also cer­tain investors who at a cer­tain age (or lifestyle) sim­ply have a desire for pas­sive own­er­ship.

Com­mon §1031 Use Cas­es

There are many uses for a DST being uti­lized in a 1031. The investor may be sell­ing a rental port­fo­lio and con­sol­i­dat­ing it into DSTs. At times investors may be seek­ing diver­si­fi­ca­tion and exchang­ing into mul­ti­ple DSTs for diver­si­fi­ca­tion. The non-recourse debt may enable an investor to replace high lever­age with low­er risk struc­tures.

DSTs pro­vide a reli­able, IRS-approved solu­tion for com­plet­ing com­plex §1031 exchanges.

As always con­tact us for more infor­ma­tion and a com­pli­men­ta­ry con­sul­ta­tion.

NAMCOA® is a SEC reg­is­tered invest­ment advi­so­ry firm that pro­vides com­pre­hen­sive port­fo­lio man­age­ment, finan­cial plan­ning, and fidu­cia­ry deci­sion-mak­ing ser­vices on behalf of retire­ment plan spon­sors. Our Dif­fer­ence is sum­ma­rized by our fidu­cia­ry approach which enables us to bet­ter meet port­fo­lio and retire­ment plan objec­tives, result­ing in stronger risk adjust­ed returns for investors and peace of mind for Clients. We also focus on alter­na­tive real estate invest­ment. Many real estate investors are seek­ing tax deferred solu­tions uti­liz­ing §1031 exchanges or Oppor­tu­ni­ty Zones.

Alter­na­tive invest­ments and DSTs are not for all investors.  The acqui­si­tion of a cer­tain alter­na­tive invest­ments includ­ing DSTs 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 adinicola@namcoa.com.

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 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 com­pa­ny mail­ing address is 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 5 Cen­ter­pointe Dri­ve, Ste. 400 Lake Oswego, OR, 97035MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.

Thank you.