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A 1031 exchange is a useful tool to potentially defer taxes when selling an investment property. One of the rules for a 1031 exchange is to replace the relinquished property with a like-kind alternative. There are various property replacement strategies that may be viable, one being the Delaware Statutory Trust (DST).

A Delaware Statutory Trust (DST) is a type of trust created under Delaware state law that provides a possible solution for investors to hold and manage real estate assets they may not otherwise have considered or think they have access to, including multifamily apartment buildings, self-storage, senior care facilities, anchored shopping centers, single tenant net lease buildings (NNN), office buildings, industrial properties and more. This investment structure continues to gain popularity because of its potential revenue-generating benefits and, for some investors is a preferred option looking to diversify their portfolios. It can either be initiated through a 1031 exchange or as a standalone investment option. A DST offers a number of potential benefits to investors looking to potentially diversify their portfolios and invest in real estate. With its reduced tax liability, flexibility in management and preservation of assets, a DST may be a compelling option for investors.

How to defer capital gains with a Delaware Statutory Trust

A DST can be used in a 1031 exchange to defer capital gains taxes on the sale of an investment property. When you sell your investment property, you can use the proceeds to invest in a DST. The DST, in turn, will use the funds to purchase one or more replacement properties similar in kind to the property you sold.

By investing in the DST through a 1031 exchange, you can defer paying capital gains taxes on the sale of your original property until you sell your interest in the DST. Essentially you can roll over your gains from your original property into the DST and avoid paying taxes on those gains at the present time.

Investors purchase interests in a trust, which represent a fractional ownership of the assets held by the trust. The trust then uses the funds from the investors to purchase and manage real estate assets. Additionally, if the investor has a property to exchange, a properly structured 1031 exchange can allow an investor to sell the investment real estate asset and buy a DST replacement property and defer the taxation.

For those who are in the process of a 1031 exchange, designating a DST property as one of the three (if using the three-property rule) replacement properties may make sense. If the first two properties fall through, an exchanger could use the DST as a backup plan potentially to complete the exchange in time. When identifying the DST as a backup to a primary option you would want to make sure you identify a DST that has plenty of equity and will potentially be available within your timeframe. Working with the right representative who has a good relationship with the sponsors may be helpful as they may be able to place and hold a reservation.

Potential Benefits and Risks of a Delaware Statutory Trust

One benefit of a DST is it offers a way for investors to pool resources to purchase larger, more valuable assets than they could on their own. This lets investors participate in real estate investments without the hassle of property management and without having to bear the full financial responsibility.

Another potential advantage of a DST structure is it is treated as a pass-through entity for tax purposes, meaning the trust itself does not pay taxes on its income. Instead, the trust’s income is passed through to the beneficiaries, who are responsible for paying taxes on their share of the trust’s income. This may result in lower overall tax liability for the investors.

DSTs offer passive ownership and more flexibility in terms of property management. Because the trust is managed by professional trustees, investors are not required to take an active role in the day-to-day management of the assets such as repairs, finding tenants, etc. This lets investors focus on other areas of their portfolios (and life!) while the trust takes care of the assets.

Another potential benefit of a DST is in the event a beneficiary experiences financial difficulties, their share of the trust assets is protected from creditors creating peace of mind for investors.

Of course investments come with some risk, so it’s important to know those too. These include:

  • Market and property risks: The value of the property held by the DST can fluctuate based on changes in interest rates, supply and demand, economic conditions, environmental conditions, zoning, etc. which means the appreciation generated could vary.
  • Lack of liquidity: DSTs are generally illiquid so they may not be easily sold or exchanged.
  • Fees and expenses: Investing in a DST can involve high fees and expenses
  • Limited control: As an investor in a DST, you have limited control over the property held by the trust, and you may not be able to make decisions regarding the management or operation of the property.



Diversified Investment Strategies represents a team of experienced and trusted professionals specializing in real estate investment and services – including buying, selling, leasing, retirement planning and wealth growth and management through strategic, informed investment choices and a meticulous real estate investment analysis. As knowledgeable replacement property professionals, they help clients build a customized strategy that identifies suitable investments pursuing successful completion of a 1031 Tax-Deferred Exchange. Visit them at or call 866-261-0104.

 *Example portfolio is hypothetical and for illustrative purposes only. Individual results will vary and are not guaranteed.

Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.

Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

There are material risks associated with investing in private placements, Delaware Statutory Trusts (“DSTs”) and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section.

DST 1031 properties are only available to accredited investors (typically defined as having a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years; or have an active Series 7, Series 82, or Series 65).  Individuals holding a Series 66 do not fall under this definition) and accredited entities only.  If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Diversified 1031 is independent of CIS.