A Complete Guide to DSTs and 1031 Exchanges For 2026
1031 exchanges can be structured through Delaware Statutory Trusts (DSTs), investment vehicles used to hold commercial real estate assets. DSTs can offer accredited investors an effective real estate investment solution with several potential benefits.
What is a 1031 Exchange?
A 1031 exchange is an IRS-recognized tax deferral strategy that allows an investor to sell an investment property and acquire a similar property with the intent to defer capital gains and depreciation recapture taxes.
1031 exchanges can be structured through Delaware Statutory Trusts (DSTs), investment vehicles used to hold commercial real estate assets. DSTs can offer accredited investors an effective real estate investment solution with several potential benefits.
What is a Delaware Statutory Trust (DST)?
A Delaware Statutory Trust(DST) is a legal entity created under Delaware law as a trust that holds title to 100% of the interest in real property.
Investors acquire a beneficial interest in the trust, with limited personal liability for the underlying assets. DSTs differ from Tenancy in Commons (TICs).
Objectives of 1031 DST Exchanges
A 1031 Exchange is an IRS-recognized tax deferral strategy that allows an investor to sell an investment property and acquire a similar property with the intent to defer capital gains and depreciation recapture taxes. More investors are expected to seek a tax-deferred solution with respect to the sale of real property since tax rates increased on capital gains in 2013.
Tax Deferral
Potentially tax-efficient, non-correlating income
Potential capital appreciation
Access to quality real estate through fractional ownership
Potential Benefits of a Delaware Statutory Trust
With varied benefits of ownership through trusts, DSTs have become increasingly popular for executing 1031 exchanges.
Here are a few potential benefits:
No personal loan recourse for investors on property-level debt
Lower minimum investment
Potential for multi-property diversification
Multiple flexible exit strategies
*There is no guarantee that these objectives will be achieved.
This article was published by NexPoint. You can download the original copy, here.
