Royalties vs. DST Income Calculator

Two very different income streams

Mineral and royalty interests can generate strong current income — often well above what a diversified real-estate vehicle pays. But that income is tied to two things you cannot control: how fast the wells deplete and where commodity prices go. A royalty that pays generously today may pay half as much in five years as the underlying reserves decline, and a swing in oil or gas prices can cut distributions sharply in any given quarter.

A Delaware Statutory Trust invested in commercial real estate works differently. Distributions are steadier because they come from rents on long-term leases rather than resource extraction. The trust is professionally managed, so you step out of active ownership entirely. And because a 1031 exchange is used to move out of the mineral interest, the capital-gains tax on the sale is deferred — potentially indefinitely if the DST interest is later 1031'd again.

The trade-off is real: DST distributions are typically lower than peak royalty income, you give up direct ownership and commodity upside, and DST interests are illiquid — there is no ready secondary market. Neither path is obviously superior; the right choice depends on your income needs, time horizon, risk tolerance, and estate plans.

What the exchange defers

When you sell mineral or royalty interests, the gain is generally taxable as a mix of ordinary income (depletion recapture) and capital gain. A properly structured 1031 exchange into a DST — treated as a tenancy-in-common interest in real property — defers that tax bill and redeploys the full pre-tax proceeds into income-producing real estate. The tax is not eliminated; it rides with the basis until you sell or pass the asset at death (stepped-up basis).