January is over and as an investor you may be looking at the investment goals you made for 2026. One of those goals may have been to restructure your real estate investments and potentially sell the property.
February 1, 2026
By Al DiNicola, AIF®
Adinicola@namcoa.com
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC
Every year we interact with investors and CPAs to clarify the smoothest utilization of a Delaware Statutory Trust (DST) in a tax deferred exchange.
Executing a §1031 exchange can be one of the most stressful moments and time-sensitive activity in a real estate investor’s journey. The reason may be the strict IRS deadlines. Couple that with potentially limited replacement property inventory and investors needing to replace debt (aka financing delays), and pile on the negotiation risks often complicate the process. For this reason, many investors are turning to Delaware Statutory Trusts (DSTs) to help ensure a smooth and efficient §1031 exchange execution.
This guide explains how 1031 exchanges work with DSTs, why DSTs qualify as replacement property, and how they simplify the exchange process. Every year we educate investors (and sometimes their CPAs) on the proper structure of the exchange.
What Is a 1031 Exchange?
A §1031 tax deferred exchange allows real estate investors to defer capital gains taxes by reinvesting proceeds from the sale of investment or business-use property into like-kind real estate. These exchanges are governed by the Internal Revenue Service and require strict adherence to procedural rules.
These procedural rules cannot be overstated and must be followed. Investors must use the services of a qualified intermediary or QI. Investors need to have an agreement with the QI prior to the closing of the property that they are selling. The timing that was referenced refers to two important deadlines after the closing of the relinquished property. The first deadline is 45 days after the relinquished property is closed. The investor needs to identify potential replacement properties that they may close on. Closing one or more of the properties on the 45-day identification list must take place within a total of 180-day of the closing of the relinquished properties. This is 135 days after the expiration of the 45-day identification time period. This calculation is often overlooked. Some may anticipate they have 180 days after the 45 days. Missing any of these dates can result in the exchange being disqualified.
Why Delaware Statutory Trusts Qualify for 1031 Exchanges
A Delaware Statutory Trust (DST) is a legal structure that allows multiple investors to own fractional interests in institutional-quality real estate. The ability to use a DST as a replacement property was approved in a letter ruling from and by the IRS in 2004. Over the past 22 years DST options have become available as replacement properties. From a tax perspective, DST investors are treated as owning direct interests in real property, not shares in a company.
Because of this structure, DSTs qualify as 1031 replacement property, making them a powerful tool for certain investors seeking speed, certainty, and compliance. In interviews with investors, we review suitability items for investors seeking to do a 1031 exchange as well as doing an exchange that involves a DST. DSTs are not for all investors
How a 1031 Exchange Works with DSTs (Step-by-Step)
One of the first items the investor needs to decide is whether it is time to sell the investment property. Years may go by and investors may rethink holding or selling and making a resolution year after year to sell their property that they’ve held for an extended period of time.
So, you have decided to Sell the investment property. This is known as the Relinquished Property
The process begins when an investor sells an investment property. Sale proceeds are transferred directly to a Qualified Intermediary, ensuring the investor does not take constructive receipt of the funds. Constructive receipt may be an elusive term for some investors. If the title company is holding the investors cash proceeds in their escrow account that is considered constructive receipt. Any amount that does not get sent to the QI will be considered taxable. This is considered boot.
The clock starts to Tick
So, what happens during the 45-day period. The QI will provide a form for the investor to fill out that enables them to identify properties during the 45 days. Investors may place a property on the 45-day list, attempt to negotiate on that property, and then decide either to retain that property on the list or replace it with other properties. This is where the smooth transition or smooth execution of utilizing DST offerings may help investors. Investors need a specialist since real estate brokers and agents typically do not have the credentials to handle DSTs. Investors may use DST’s as either a primary replacement property or a backup replacement property. In addition, DST’s may be utilized to handle any cash press proceeds OK a boot to avoid paying capital gains on that amount of proceeds not used when buying a traditional piece of real estate. DSTs are prepackaged and if an investor needs to replace debt non-recourse debt may be assigned based on the percentage of cash being invested by the investor to satisfy one of the requirements of his successful 1031 exchange. Investors have the ability to diversify across geographic markets and states as well as different asset classes. DSTs also have the ability to match the exchange proceeds precisely down to the penny of cash that the investor is required to utilize to satisfy the other component of the 1031 exchange which is to utilize all the cash. DST offerings are typically pre-structured and ready to accept capital, which significantly reduces identification risk.
Match Equity and Debt Requirements
DSTs allow investors to replace both equity and debt, which is essential for full tax deferral. This flexibility helps avoid common 1031 mistakes such as under-investing or overleveraging.
Close the Exchange Within 180 Days
Once DSTs are selected, the Qualified Intermediary transfers exchange funds directly into the DST(s). Because financing, inspections, and management are already in place, DST closings are generally faster and more predictable than traditional property purchases.
Why DSTs Enable Smooth 1031 Exchange Execution
Using DSTs in a 1031 exchange helps investors overcome many common challenges, including the tight IRS deadlines. Depending on the specific markets there may be limited replacement property inventory. If the investor does not want to bring additional cash to the replacement acquisition debt needs to be replaced. There may be financing and appraisal delays. One of the primary reasons to use a DST would be to avoid the ongoing landlord responsibilities
Key benefits of DSTs include:
- Passive real estate ownership
- Access to institutional-grade assets
- Diversification across multiple markets
- Predictable timelines and simplified execution
Who Should Consider a DST 1031 Exchange Strategy?
DSTs are commonly used by:
- Retiring landlords transitioning to passive income
- Investors selling highly appreciated real estate
- Individuals seeking diversification after a single-property sale
- Investors prioritizing simplicity and tax efficiency
While DSTs are not appropriate for every investor, they are often ideal when smooth exchange execution is a top priority.
Final Thoughts
A 1031 exchange with Delaware Statutory Trusts can transform a high-pressure tax event into a streamlined investment strategy. By combining IRS compliance with passive ownership and diversification, DSTs help investors execute exchanges efficiently—without sacrificing income or peace of mind.
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.
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 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 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, 5 Centerpointe Drive, Ste. 400 Lake Oswego, OR, 97035. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.
Thank you.
