What Is a DST?
A Delaware Statutory Trust is a legal entity that holds title to one or more income-producing properties and divides ownership into fractional beneficial interests. IRS Revenue Ruling 2004-86 settled the point that matters: a properly structured DST interest is treated as like-kind real property, so it qualifies as replacement property in a 1031 exchange.
For an owner selling appreciated real estate, a DST solves two problems at once: it defers the capital-gains tax through a 1031 exchange, and it hands day-to-day management to a professional sponsor. The investor becomes a passive beneficiary who receives a share of the income and, eventually, the sale proceeds.
How It Works
- Sell the relinquished property. Proceeds go to a qualified intermediary, never to you.
- Identify within 45 days. DSTs are pre-packaged and ready, which makes the identification window easy to meet.
- Close within 180 days. Your funds are exchanged into beneficial interests in the trust.
- Collect monthly distributions. The sponsor manages the property and pays income to investors.
- Exit at disposition. When the trust sells, roll into another 1031, or a 721 exchange into a REIT, to keep deferring the gain.
The pitch is simple. Keep the income, defer the tax, and hand the operations to a professional sponsor.
Why investors choose a DSTTax Advantages
Exchange sale proceeds into the trust and defer capital gains, depreciation recapture, and the 3.8% net investment income tax.
Your share of the property's depreciation offsets a portion of the monthly distribution each year.
Heirs inherit at a stepped-up basis, which can eliminate the deferred gain entirely.
Who It's For
A good fit
- Owners with a large embedded gain who want to defer the tax.
- Investors ready to give up active management for passive income.
- Those with a 5–10 year horizon and no near-term liquidity need.
- Estate planners seeking a step-up for heirs.
Not a fit
- Investors who may need their capital back before the hold ends.
- Owners who want to keep control of operations or financing.
- Buyers seeking a single-asset home run rather than steady income.
- Non-1031 cash where the tax deferral offers no benefit.
Considerations & Risks
DST interests are illiquid, with no public market, so plan to hold for the full term. The trust cannot raise new capital, so it must be conservatively financed from the start. Distributions depend on property performance and are not guaranteed, and up-front fees reduce day-one equity. As with any real estate, values move with the market and interest rates.
DST vs. Direct vs. TIC
| Feature | DST | Direct Property | Tenant-in-Common |
|---|---|---|---|
| 1031 eligible | Yes (Rev. Rul. 2004-86) | Yes | Yes |
| Number of investors | Unlimited | One | Up to 35 |
| Management | Sponsor, passive | Owner, active | Shared / manager |
| Financing | Non-recourse, pre-arranged | Investor-arranged | Each co-owner signs |
| Typical minimum | $25K–$100K | Full asset price | Larger |
| Decision-making | None, by design | Full | Unanimous on key items |
General comparison; specific offerings vary. Not tax or legal advice.
Frequently Asked Questions
What is the typical minimum investment?
How long is my capital committed?
Can I 1031 out of a DST later?
Are distributions guaranteed?
Glossary
Related Offerings
Artery Plaza DST
Cherry Creek Residences DST
