Understanding DSTs and OZ 2.0 for Smart Investing

(Updat­ed for OZ 2.0 – Effec­tive 2027)

Delaware Statu­to­ry Trusts (DSTs) and Oppor­tu­ni­ty Zone (OZ) invest­ments are two of the most pow­er­ful tax-advan­taged real estate strate­gies avail­able today. How­ev­er, with the pas­sage of new leg­is­la­tion (referred to as Oppor­tu­ni­ty Zones 2.0) the land­scape is evolv­ing sig­nif­i­cant­ly start­ing in 2027.

April 20, 2026

By Al DiNi­co­la, AIF®
adinicola@fiduciarycm.com
Pri­vate Fund Advisor/DST 1031 Spe­cial­ist
Fidu­cia­ry Cap­i­tal Man­age­ment ^®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

For advi­sors, the deci­sion is no longer just about com­par­ing DSTs vs. the orig­i­nal OZ pro­gram. It now requires under­stand­ing how the per­ma­nent, restruc­tured OZ 2.0 frame­work changes tim­ing, ben­e­fits, and risk. There may be out­stand­ing rea­sons for mov­ing into a cur­rent OZ pro­gram based on the under­ly­ing loca­tion estab­lished from the first ver­sion of the pro­gram.

While both strate­gies remain valu­able, they serve very dif­fer­ent client needs. Choos­ing the right one depends on tax sit­u­a­tion, risk tol­er­ance, income needs, and invest­ment hori­zon.

DST Overview

DSTs remain one of the most con­sis­tent and wide­ly used tools for real estate investors, espe­cial­ly those com­plet­ing 1031 exchanges.

Frac­tion­al Own­er­ship in Sta­bi­lized Assets
DSTs pro­vide investors with frac­tion­al own­er­ship in insti­tu­tion­al-grade, income-pro­duc­ing prop­er­ties such as mul­ti­fam­i­ly, indus­tri­al, or med­ical assets.

1031 Exchange Eli­gi­bil­i­ty
DSTs qual­i­fy as like-kind replace­ment prop­er­ty under IRS rules, allow­ing full defer­ral of cap­i­tal gains tax­es when tran­si­tion­ing from active­ly man­aged real estate.

Pas­sive Income and Pre­dictabil­i­ty
DSTs are designed to pro­duce imme­di­ate cash flow through sta­bi­lized assets. Pro­fes­sion­al man­age­ment elim­i­nates land­lord respon­si­bil­i­ties, mak­ing them espe­cial­ly attrac­tive for retirees or clients seek­ing sim­plic­i­ty.

Oppor­tu­ni­ty Zones Overview (OZ 2.0 – Start­ing 2027)

Oppor­tu­ni­ty Zones are enter­ing a new phase begin­ning Jan­u­ary 1, 2027, with major struc­tur­al improve­ments and long-term per­ma­nence.

Per­ma­nent Pro­gram Struc­ture
Unlike the orig­i­nal pro­gram (which had sun­set pro­vi­sions), OZ 2.0 is now a per­ma­nent part of the tax code, pro­vid­ing long-term plan­ning cer­tain­ty.

Updat­ed Tax Incen­tives
OZ 2.0 intro­duces:

• A rolling 5‑year defer­ral of cap­i­tal gains (instead of a fixed 2026 dead­line)
• A 10% basis step-up after 5 years (sim­pli­fied vs. pri­or rules)
• Con­tin­ued tax-free appre­ci­a­tion after a 10-year hold
• Enhanced incen­tives for rur­al invest­ments (up to 30% basis step-up)

Stricter Eli­gi­bil­i­ty and More Tar­get­ed Zones

• Few­er eli­gi­ble zones (approx. 20–25% reduc­tion)
• Low­er income thresh­olds for qual­i­fi­ca­tion
• New zone des­ig­na­tions every 10 years
• Rur­al are spe­cial treat­ment

Devel­op­ment-Focused Strat­e­gy
Most OZ invest­ments still involve:

• Ground-up devel­op­ment
• Rede­vel­op­ment projects
• Long-term appre­ci­a­tion focus

This means high­er risk—but poten­tial­ly high­er reward.

Key Dif­fer­ences (Now Includ­ing OZ 2.0 Changes)

How OZ 2.0 Changes the Advi­sor Con­ver­sa­tion

The intro­duc­tion of OZ 2.0 fun­da­men­tal­ly shifts how advi­sors posi­tion these strate­gies:

1. Tim­ing Becomes More Strate­gic

Under the orig­i­nal OZ rules, investors faced a hard 2026 dead­line for max­i­mum ben­e­fits. OZ 2.0 replaces this with a rolling defer­ral sys­tem, mak­ing plan­ning more flex­i­ble.

 This reduces urgency, but increas­es the need for strate­gic tim­ing deci­sions.

2. Long-Term Com­mit­ment Becomes Even More Impor­tant

OZ invest­ments still require:

• 10+ year hold­ing peri­ods for full ben­e­fits
• Patience for devel­op­ment and sta­bi­liza­tion

DSTs, by con­trast, typ­i­cal­ly pro­vide income from day one.

3. Risk Gap Between DSTs and OZs Widens

With stricter zone qual­i­fi­ca­tions and con­tin­ued focus on dis­tressed areas, OZ 2.0 invest­ments may become:

• More tar­get­ed
• More impact­ful
• But also, poten­tial­ly more volatile

Mean­while, DSTs con­tin­ue to focus on sta­bi­lized, insti­tu­tion­al assets, rein­forc­ing their role as the low­er-risk option.

4. Use Cas­es Become More Dis­tinct

DSTs (Best for):

• 1031 exchange investors
• Clients seek­ing pas­sive income
• Retirees or income-focused port­fo­lios
• Risk-averse investors

Oppor­tu­ni­ty Zones 2.0 (Best for):

• Clients with cap­i­tal gains from any source (not just real estate)
• Long-term, growth-ori­ent­ed investors
• Those com­fort­able with devel­op­ment risk
• Investors seek­ing max­i­mum tax-free upside

Con­clu­sion

Delaware Statu­to­ry Trusts and Oppor­tu­ni­ty Zones are not inter­change­able. How­ev­er, they are com­ple­men­tary strate­gies designed for dif­fer­ent investor pro­files.

DSTs Offer:

• Sta­bil­i­ty
• Pas­sive income
• Proven 1031 tax defer­ral

Oppor­tu­ni­ty Zones 2.0 offer:

• Long-term tax-free growth poten­tial
• Greater flex­i­bil­i­ty under new rules
• High­er risk, high­er reward oppor­tu­ni­ties

With the 2027 changes, Oppor­tu­ni­ty Zones will become more struc­tured, per­ma­nent, and strate­gi­cal­ly rel­e­vant. What becomes crit­i­cal is to have patience and risk tol­er­ance. The major point to keep in mind and which may get over­looked is the 180 days for rein­vest­ment of only the cap­i­tal gains (retain your basis) with­in 180 days.  The means cap­i­tal gains from all sources that are real­ized in the end of 2026 may qual­i­fy for OZ invest­ment made in 2027.

The advisor’s role is clear:
Match the strat­e­gy to the client.

• If the goal is income, sim­plic­i­ty, and preser­va­tion, DSTs may be an alter­na­tive.
• If the goal is growth, tax-free upside, and long-term invest­ment, OZ 2.0 may be the right solu­tion.

The most effec­tive port­fo­lios may even use both, bal­anc­ing sta­bil­i­ty with growth, while opti­miz­ing tax effi­cien­cy across the entire wealth strat­e­gy. Con­tact us for more infor­ma­tion and to deter­mine which strat­e­gy (or com­bi­na­tion) may help in your spe­cif­ic sit­u­a­tion.

Fidu­cia­ry Cap­i­tal Man­age­ment (Fidu­cia­ry CM^®) 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@fiduciarycm.com

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