Reading Your DST Federal Tax Information Statement

Part 3 — Under­stand­ing Your DST Tax Pack­age

DST.EDU Spe­cial Series

Octo­ber 12, 2026

By Al DiNi­co­la, AIF®                                                                                        
Pri­vate Fund Advi­sor
DST 1031 Spe­cial­ist
Fidu­cia­ry Cap­i­tal Man­age­ment, LLC

What Investors and Their CPAs Need to Know About DST Tax Report­ing

When investors first open a DST Fed­er­al Tax Infor­ma­tion State­ment, one ques­tion I hear often is:

“What am I sup­posed to do with all of these num­bers?”

That is under­stand­able. A tra­di­tion­al Form 1099 may show one or two famil­iar amounts. A DST tax state­ment can look more involved because it may include sev­er­al cat­e­gories of income, expens­es, inter­est, tax­es, and depre­ci­a­tion.

Here’s the impor­tant part: those num­bers are not all mea­sur­ing the same thing.

Once you under­stand what each cat­e­go­ry rep­re­sents, the state­ment becomes much eas­i­er to fol­low. The goal is not for you to pre­pare your own return. It is to under­stand what you received, keep the right records, and have a bet­ter con­ver­sa­tion with your CPA or tax pre­par­er.

What Is the State­ment Show­ing You?

A DST Fed­er­al Tax Infor­ma­tion State­ment gen­er­al­ly pro­vides infor­ma­tion about your pro­por­tion­ate share of the tax activ­i­ty gen­er­at­ed by the under­ly­ing real estate.

That may include:

• rental real estate income;
• mort­gage inter­est;
• real estate tax­es;
• prop­er­ty oper­at­ing expens­es;
• depre­ci­a­tion; and
• cash dis­tri­b­u­tions.

These num­bers can appear togeth­er, but they usu­al­ly will not match because some describe cash flow while oth­ers describe tax activ­i­ty.

I like to think of the state­ment as telling two sto­ries:

• The eco­nom­ic sto­ry — how much cash the invest­ment gen­er­at­ed and dis­trib­uted.
• The tax sto­ry — how your share of income, expens­es, and depre­ci­a­tion is report­ed.

The two are relat­ed, but they are not the same.

A Sim­ple Exam­ple

Assume an investor’s annu­al DST infor­ma­tion shows:

• Cash dis­tri­b­u­tions: $12,500
  Pas­sive rental real estate income: $4,542
  Mort­gage inter­est: $8,750
  Real estate tax­es: $2,100
  Oth­er prop­er­ty expens­es: $3,250
  Depre­ci­a­tion: Report­ed sep­a­rate­ly

An investor may nat­u­ral­ly ask:

“If I received $12,500, why is the rental-income fig­ure only $4,542?”

The answer is that the two num­bers mea­sure dif­fer­ent things.

Cash Dis­tri­b­u­tion: What Was Paid to You

The cash dis­tri­b­u­tion tells you how much cash was dis­trib­uted dur­ing the year.

If you received $12,500, that is what actu­al­ly reached your account. It does not, by itself, tell you your tax­able income.

This is an impor­tant dis­tinc­tion because investors some­times assume every dol­lar dis­trib­uted equals one dol­lar of tax­able income. That is not nec­es­sar­i­ly the case.

Prop­er­ty expens­es and non­cash deduc­tions can affect tax­able income even though they do not nec­es­sar­i­ly reduce the amount of cash already dis­trib­uted.

We will explore this fur­ther in Part 4.

Rental Real Estate Income: The Tax Side

The rental-income fig­ure relates to the tax­able activ­i­ty asso­ci­at­ed with your pro­por­tion­ate own­er­ship of the under­ly­ing prop­er­ty. Applic­a­ble expens­es may include mort­gage inter­est, real estate tax­es, oper­at­ing expens­es, and depre­ci­a­tion.

So, an investor might receive $12,500 in cash while the tax state­ment shows $4,542 of pas­sive rental real estate income. That does not mean the dif­fer­ence is auto­mat­i­cal­ly “tax-free.” It sim­ply means the cash-flow cal­cu­la­tion and the tax cal­cu­la­tion are dif­fer­ent.

Your CPA should review the com­plete state­ment and sup­port­ing sched­ules before deter­min­ing how the amounts apply to your indi­vid­ual return.

Mort­gage Inter­est

You may also see an allo­cat­ed amount for mort­gage inter­est.

In our exam­ple:

• Mort­gage inter­est: $8,750

That amount gen­er­al­ly relates to financ­ing on the under­ly­ing DST prop­er­ty.

I would cau­tion investors against try­ing to recre­ate the amount by tak­ing the prop­er­ty’s total mort­gage inter­est and mul­ti­ply­ing it by an esti­mat­ed own­er­ship per­cent­age.

Use the tax infor­ma­tion pro­vid­ed by the spon­sor and let your CPA deter­mine how it applies to your return.

Real Estate Tax­es and Prop­er­ty Expens­es

The same idea applies to real estate tax­es and oth­er prop­er­ty expens­es.

In our illus­tra­tion:

• Real estate tax­es: $2,100
• Oth­er prop­er­ty expens­es: $3,250

Com­mer­cial prop­er­ties can have sig­nif­i­cant oper­at­ing costs, includ­ing tax­es, insur­ance, man­age­ment expens­es, repairs, and main­te­nance. Your tax pack­age may show your allo­cat­ed por­tion of those costs. These expens­es help explain why tax­able rental income may dif­fer from the cash you received.

Depre­ci­a­tion Deserves Spe­cial Atten­tion

Depre­ci­a­tion is one of the most impor­tant items in a DST tax pack­age. Unlike a mort­gage pay­ment or prop­er­ty-tax bill, depre­ci­a­tion is a non­cash deduc­tion.

The prop­er­ty does not write a depre­ci­a­tion check. Instead, depre­ci­a­tion gen­er­al­ly allows qual­i­fy­ing prop­er­ty basis to be recov­ered for tax pur­pos­es over time. That means depre­ci­a­tion may reduce tax­able rental income with­out rep­re­sent­ing cash leav­ing the investor’s account. This is one rea­son an investor may receive more cash than the amount of tax­able rental income report­ed for the year.

If a cost-seg­re­ga­tion study has been com­plet­ed, the tax pack­age may include anoth­er sched­ule divid­ing depre­cia­ble basis among dif­fer­ent recov­ery peri­ods.

Your indi­vid­ual result can also depend on your own tax basis and his­to­ry. A cash investor and a §1031 exchange investor in the same DST may not have iden­ti­cal depre­ci­a­tion results.

Don’t Ignore the Sup­port­ing Sched­ules

One point I empha­size is:

• Do not assume the first page is the entire tax pack­age.

Sup­port­ing sched­ules may con­tain infor­ma­tion about depre­ci­a­tion, cost seg­re­ga­tion, state allo­ca­tions, inter­est, prop­er­ty expens­es, or oth­er tax items.

Keep the entire pack­age togeth­er.

If your CPA receives only the sum­ma­ry page, impor­tant infor­ma­tion may be miss­ing.

Make Sure You Are Look­ing at the Right DST

This becomes increas­ing­ly impor­tant as an investor owns mul­ti­ple DSTs.

You may have five DSTs from sev­er­al dif­fer­ent spon­sors and receive a sep­a­rate tax pack­age for each invest­ment.

Before sav­ing the doc­u­ment, con­firm:

• Prop­er­ty name
• Spon­sor name
• Tax year

Then file the pack­age with that spe­cif­ic invest­ment.

A few sec­onds spent doing this when the doc­u­ment arrives can pre­vent con­fu­sion lat­er.

Think of the State­ment as a Col­lec­tion of Com­po­nents

One mis­take investors some­times make is search­ing the state­ment for one num­ber that answers:

• “How much income did I have?”

A bet­ter approach is to view the state­ment as a col­lec­tion of tax com­po­nents. Cash dis­tri­b­u­tions tell you one thing. Rental income tells you some­thing else.

Mort­gage inter­est, tax­es, oper­at­ing expens­es, and depre­ci­a­tion pro­vide addi­tion­al infor­ma­tion.

Your tax pro­fes­sion­al then eval­u­ates those com­po­nents in the con­text of your indi­vid­ual return.

Pas­sive-activ­i­ty rules, at-risk rules, basis lim­i­ta­tions, and oth­er tax con­sid­er­a­tions may also affect whether and when par­tic­u­lar deduc­tions can be used. That is why the state­ment pro­vides impor­tant infor­ma­tion, but it is not the same thing as a com­plet­ed tax return.

A Good Ques­tion to Ask Your CPA

A use­ful way to start the con­ver­sa­tion with your tax pro­fes­sion­al is:

“Have I giv­en you the com­plete DST tax pack­age, includ­ing the depre­ci­a­tion and sup­port­ing sched­ules, and is there any­thing else you need from my pri­or §1031 or basis records?”

That is gen­er­al­ly more pro­duc­tive than try­ing to inter­pret every line on your own.

The Bot­tom Line

A DST Fed­er­al Tax Infor­ma­tion State­ment can look com­pli­cat­ed at first, but the basic idea is straight­for­ward.

• Cash dis­tri­b­u­tions tell you how much cash you received.
• Rental real estate income relates to tax­able activ­i­ty asso­ci­at­ed with your pro­por­tion­ate own­er­ship.
• Mort­gage inter­est, real estate tax­es, and oper­at­ing expens­es may affect that tax­able result.
• Depre­ci­a­tion is a non­cash deduc­tion that may also reduce tax­able rental income.

Once you under­stand that each num­ber has a dif­fer­ent pur­pose, the state­ment becomes much eas­i­er to read.

Investor/CPA Take­away

Do not look for one num­ber labeled “income” and assume it tells the whole sto­ry. Read the DST Fed­er­al Tax Infor­ma­tion State­ment as a col­lec­tion of tax com­po­nents. Cash dis­tri­b­u­tions, rental income, expens­es, and depre­ci­a­tion each serve a dif­fer­ent pur­pose.

In Part 4 of our DST.EDU series, we will take a clos­er look at:

DST Rental Income: Why Cash Dis­tri­b­u­tions and Tax­able Income Are Not the Same Thing.

Edu­ca­tion­al Note

This arti­cle is intend­ed sole­ly for gen­er­al edu­ca­tion­al and infor­ma­tion­al pur­pos­es. It is not indi­vid­ual tax, legal, secu­ri­ties, or invest­ment advice. DST tax report­ing can vary by invest­ment, spon­sor, prop­er­ty, report­ing method, tax basis, and investor cir­cum­stances. Investors should pro­vide their com­plete DST tax pack­age to their CPA or oth­er qual­i­fied tax pro­fes­sion­al and obtain advice based on their indi­vid­ual sit­u­a­tion.

Delaware Statu­to­ry Trusts (DSTs) have become a notable part of com­mer­cial real estate invest­ing. As Al DiNi­co­la empha­sizes, a DST is a struc­ture, not an asset class, the focus should remain on the qual­i­ty of the under­ly­ing prop­er­ty and how it fits your goals.  DSTs are for accred­it­ed investors and car­ry risks, i.e. illiq­uid­i­ty, real estate mar­ket fluc­tu­a­tions, and spon­sor deci­sions. Con­sult your advis­er about suit­abil­i­ty, espe­cial­ly for §1031 exchanges. For more details, please con­tact:

• Al DiNi­co­la adnicola@fiduciarycm.com  
• Direct: 239 691 8098
• Sched­ule Appoint­ment

Advi­so­ry ser­vices are offered through Fidu­cia­ry CM, an SEC-reg­is­tered advis­er. Invest­ments involve risk and are not guar­an­teed. Always refer to offer­ing doc­u­ments for full risk dis­clo­sures. Delaware Statu­to­ry Trust (DST) invest­ments involve risks asso­ci­at­ed with com­mer­cial real estate own­er­ship and are not suit­able for all investors. These risks may include, but are not lim­it­ed to, loss of prin­ci­pal, illiq­uid­i­ty, ten­ant vacan­cy, financ­ing risk, inter­est rate fluc­tu­a­tions, prop­er­ty val­ue declines, eco­nom­ic and mar­ket con­di­tions, and risks asso­ci­at­ed with spon­sor and prop­er­ty man­age­ment deci­sions. Please refer to the applic­a­ble Prop­er­ty Pri­vate Place­ment Mem­o­ran­dum (PPM) for a com­plete dis­cus­sion of the risks and con­sid­er­a­tions spe­cif­ic to that offer­ing. Secu­ri­ties-relat­ed activ­i­ties, where applic­a­ble, are con­duct­ed through the author’s then-cur­rent reg­is­tered bro­ker-deal­er, mem­ber FINRA/SIPC. Cur­rent reg­is­tra­tion infor­ma­tion is avail­able through FINRA Bro­kerCheck. Past per­for­mance is not indica­tive of future results. Nei­ther the Reg­is­tered Rep­re­sen­ta­tive nor the Bro­ker-Deal­er can con­trol or guar­an­tee future deci­sions made by the DST spon­sor, asset man­ag­er, prop­er­ty man­ag­er, ten­ants, lenders, or oth­er third par­ties involved in the oper­a­tion of the prop­er­ty. Past per­for­mance is not indica­tive of future results. For edu­ca­tion­al pur­pos­es only; not tax, legal, secu­ri­ties, or invest­ment advice and not an offer or solic­i­ta­tion to buy or sell secu­ri­ties.