A Delaware Statutory Trust — a DST — is one of the most widely used ways for a 1031 exchange investor to move from active, hands-on property ownership into passive, professionally managed real estate without triggering capital-gains tax. A DST is a trust formed under Delaware law that holds title to income-producing real estate; investors buy fractional beneficial interests in the trust and receive their share of the rental income. Under IRS Revenue Ruling 2004-86, a beneficial interest in a properly structured DST is treated as a direct interest in real property, so it qualifies as like-kind replacement property in a 1031 exchange. The result is a vehicle that lets an exchanger defer tax, collect regular distributions, diversify across institutional assets, close in days to meet the 45-day deadline, and replace debt without personally qualifying for a loan. This guide explains what a DST is, how beneficial interests work, why DSTs qualify for 1031s, the benefits and trade-offs, and whether a DST is right for your exchange. DST interests are securities; suitability and current rules vary by situation — verify with your CPA and attorney. This is educational information, not tax, legal, or investment advice.
What Is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a legal entity formed under Delaware's Statutory Trust Act that holds title to one or more income-producing real estate assets — an apartment community, a distribution warehouse, a medical office building, a net-lease retail property, or a portfolio of similar assets. Rather than owning property directly, investors buy fractional beneficial interests in the trust. The DST owns the real estate; you own a slice of the trust, and through it, a proportional stake in the underlying property and its income.
The DST is sponsored and managed by a professional real estate firm (the sponsor) that acquires the property, arranges any financing, and handles all operations through a trustee and, typically, a master-lease structure. Investors are entirely passive: they don't sign leases, manage tenants, fund repairs, or make operating decisions. Each investor receives a proportional share of the net rental income as regular distributions, plus a proportional share of the proceeds when the property is eventually sold. A DST commonly holds the property for a multi-year period — often around five to seven years — before the sponsor sells it.
So a DST is a Delaware-law trust that holds income-producing real estate, in which investors own fractional beneficial interests and receive passive income — without the work of direct ownership. A Delaware Statutory Trust — a trust formed under Delaware law that holds title to income-producing real estate, is sponsored and managed professionally, and divides ownership into fractional beneficial interests that pay investors a proportional share of the income — lets investors own institutional real estate passively. The sponsor handles everything; investors collect distributions. Understanding what a DST is frames why 1031 exchangers use it. A DST is a Delaware-law trust that owns income-producing real estate, in which investors hold fractional, passive beneficial interests that qualify as like-kind property for a 1031 exchange.
How Fractional Beneficial Interests Work
At the heart of a DST is the fractional beneficial interest. When you invest in a DST, you don't receive a deed to a specific unit or a corner of the building; instead, you purchase an undivided beneficial interest in the entire trust, sized to the dollar amount you invest. If a DST holds a $50 million property and you invest $500,000, you own roughly 1% of the beneficial interests and are entitled to roughly 1% of the income and eventual sale proceeds. This fractional structure is what makes institutional-grade real estate accessible at relatively low minimums.
Because the interest is fractional and passive, DSTs can have many investors — there's no statutory cap on the number, unlike the older tenant-in-common (TIC) structures that DSTs largely replaced. Investors have no voting rights or management control; the sponsor and trustee make all decisions, which is precisely what keeps the structure compliant with the IRS rules that allow DST interests to qualify for 1031 exchanges. In exchange for giving up control, investors get true passivity and access to larger, professionally managed assets than they could typically own alone. Minimums are commonly in the range of roughly $25,000 to $100,000 for a 1031 exchange.
So a fractional beneficial interest is a proportional, passive, undivided stake in the whole trust — your share of the income, the gain, and the depreciation, without control over the property. How fractional beneficial interests work — investors buying an undivided beneficial interest sized to their investment (not a deeded piece of the building), receiving a proportional share of income, sale proceeds, and depreciation, with no voting or management rights, at relatively low minimums — is the core of the DST. Many investors can participate; the sponsor controls operations. Understanding beneficial interests frames how income and tax benefits flow. A beneficial interest is a fractional, passive, undivided stake in the whole DST that entitles you to a proportional share of income, gain, and pass-through depreciation, with no control over the property.
You don't own a unit or a wall — you own an undivided slice of the whole trust, and with it a proportional share of the rent, the eventual sale, and the depreciation that shelters your income.
Why DSTs Qualify for 1031 Exchanges
The reason DSTs matter so much to real estate investors is that they qualify as 1031 replacement property — and that hinges on IRS Revenue Ruling 2004-86. A 1031 exchange lets you sell investment real estate and reinvest the proceeds into like-kind replacement real property while deferring the capital-gains tax you'd otherwise owe. The catch is that the replacement must be like-kind real property — not a security or an interest in a business entity. Rev. Rul. 2004-86 resolved this for DSTs by ruling that a beneficial interest in a properly structured DST is treated as a direct interest in the underlying real property.
That treatment is conditional. To preserve it, the DST must follow strict limitations — often called the 'seven deadly sins' — that prevent the trust from acting like an active business: the trustee can't accept new capital after the offering closes, can't renegotiate or refinance the debt (except on a tenant bankruptcy), can't reinvest sale proceeds, can't make more than minor non-structural improvements, can't hold cash beyond a short-term reserve, can't distribute beyond current cash flow, and can't renegotiate the leases (a master lease handles operations instead). These restrictions keep the DST passive enough that each investor is treated as owning real property directly — which is exactly why the interest qualifies for a 1031.
So DSTs qualify for 1031 exchanges because Rev. Rul. 2004-86 treats a beneficial interest in a properly structured DST as direct real property ownership — provided the trust obeys strict passivity rules. Why DSTs qualify for 1031 exchanges — IRS Revenue Ruling 2004-86 treating a beneficial interest in a properly structured DST as a direct interest in real property (so it counts as like-kind replacement property), conditioned on the trust following the 'seven deadly sins' restrictions that keep it passive — is the legal foundation of the strategy. The restrictions are what preserve the treatment. Understanding this explains why DSTs are 1031-eligible. DSTs qualify for 1031 exchanges because Rev. Rul. 2004-86 treats a properly structured DST interest as direct real property, as long as the trust follows strict passivity rules.
Benefits & Trade-Offs at a Glance
DSTs offer a distinctive package of benefits for a 1031 exchanger. They provide tax deferral (the whole reason for the exchange), regular passive income from professionally managed institutional real estate, diversification (you can split exchange proceeds across multiple DSTs, sectors, and markets), low minimums that make diversification practical, and remarkably fast closing — often in a matter of days, which is a lifesaver against the 45-day identification deadline. DSTs also solve the debt-replacement problem: because the DST's non-recourse debt passes through to investors proportionally, you can match the debt on your relinquished property without personally qualifying for or signing on a new loan.
The trade-offs are real and must be weighed honestly. A DST is illiquid — there's no meaningful secondary market, so you're committed until the sponsor sells the property, typically after a multi-year hold. You have no control over the property or the timing of its sale. You take on sponsor risk (the quality of the manager matters enormously), market and tenant risk, financing and interest-rate risk on any leverage, and the cost of the offering's fees and load. Distributions and returns are projections, not guarantees, and the value of the underlying real estate can fall. So a DST trades control and liquidity for passivity, diversification, and tax deferral.
So DSTs offer tax deferral, passive income, diversification, low minimums, fast closing, and debt replacement — at the cost of illiquidity, no control, and sponsor, market, and fee risk. Benefits and trade-offs at a glance — DSTs delivering tax deferral, passive professional management, diversification, low minimums, fast closing (helping the 45-day deadline), and pass-through non-recourse debt replacement, against illiquidity, no control, sponsor and market risk, and fees — define the decision. The benefits suit a 1031 exchanger; the trade-offs require a multi-year, hands-off commitment. Understanding both frames suitability. DSTs offer deferral, passive income, diversification, low minimums, fast closing, and debt replacement, but require accepting illiquidity, no control, and sponsor, market, and fee risk.
- A DST is a Delaware-law trust that holds income-producing real estate; investors own fractional, passive beneficial interests.
- Under IRS Revenue Ruling 2004-86, a properly structured DST interest is treated as direct real property, so it qualifies as 1031 replacement property.
- DSTs offer tax deferral, passive income, diversification, low minimums, fast closing, and pass-through non-recourse debt replacement.
- The trade-offs are illiquidity, no control, and sponsor, market, financing, and fee risk — distributions and returns are projections, not guarantees.
How DSTs Replaced the TIC Structure
Before DSTs became the dominant vehicle for passive 1031 replacement property, investors used the tenant-in-common (TIC) structure — and understanding why DSTs replaced TICs clarifies what makes a DST work. In a TIC, each investor holds a separate, deeded fractional interest in the property as a co-owner, and lenders treat each co-owner as a borrower. The IRS limited TICs to no more than 35 investors, and major decisions (like selling or refinancing) typically required unanimous or near-unanimous consent among the co-owners.
That structure created friction. With up to 35 separate borrowers and the need for unanimous votes, deals were cumbersome to finance and govern, and a single holdout could stall a sale or refinancing. The DST, validated for 1031 use by Rev. Rul. 2004-86, solved these problems: a single entity (the trust) holds title and is the sole borrower, there's no cap on the number of investors, and investors have no voting rights at all — the sponsor and trustee make every decision. This makes DSTs far easier to finance, scale, and administer, which is why they have largely displaced TICs for passive 1031 replacement.
So DSTs replaced TICs by removing the investor cap, consolidating borrowing into a single entity, and eliminating the unanimous-consent gridlock that made TICs unwieldy. How DSTs replaced the TIC structure — TICs limiting investors to 35, treating each as a separate borrower, and requiring near-unanimous consent for major decisions, versus DSTs allowing unlimited investors, a single borrower (the trust), and no investor voting (the sponsor decides) — explains the DST's dominance. The DST is simpler to finance, scale, and govern. Understanding the contrast clarifies what makes a DST passive and 1031-eligible. DSTs replaced TICs by removing the 35-investor cap, using a single trust as sole borrower, and eliminating the unanimous-consent gridlock, making them far easier to finance and administer.
The DST's quiet innovation was removing the people problem: no investor cap, one borrower, and no votes to wrangle — the sponsor decides, which is exactly what keeps the structure passive and 1031-eligible.
Is a DST Right for Your Exchange?
Whether a DST fits your exchange depends on your goals, your timeline, and your tolerance for illiquidity. A DST tends to fit an investor who is selling appreciated investment real estate, wants to defer the capital-gains tax through a 1031, and is ready to move from active landlording to truly passive ownership — someone who values regular income, wants to diversify across institutional assets, doesn't need access to the capital for several years, and may want to keep deferring (or pass the interest to heirs with a step-up) at the end of the hold. The fast closing also makes DSTs a practical solution when the 45-day clock is running and a direct purchase looks unlikely to close in time.
A DST is less suitable if you need liquidity, want hands-on control over the property, or aren't comfortable with the sponsor controlling the timing of the eventual sale. Because DST interests are securities sold under Regulation D, they're generally available only to accredited investors and only after a suitability review confirms the investment fits your financial situation and risk tolerance. They're not a fit for capital you might need in the near term, and they carry real risks — illiquidity, sponsor and market risk, and fees — that must be weighed against the benefits.
So a DST is right for your exchange if you want passive, diversified, tax-deferred income real estate, can commit for a multi-year hold, and qualify as an accredited investor — and less right if you need control or liquidity. Is a DST right for your exchange — fitting an accredited 1031 investor who wants passive, diversified, tax-deferred income, can accept a multi-year illiquid hold and sponsor-controlled timing, and may want continued deferral or a step-up for heirs, versus not fitting those who need liquidity or control — depends on matching the vehicle to your goals after a suitability review. The benefits suit passive exchangers; the trade-offs require commitment. Understanding the fit guides the decision. A DST fits an accredited 1031 investor seeking passive, diversified, tax-deferred income who can accept illiquidity and no control — and is less suitable for those needing liquidity or hands-on control.
How Baker 1031 Helps You Understand DSTs
Baker 1031 Investments helps investors understand how DSTs work — what a Delaware Statutory Trust is, how fractional beneficial interests work, why DSTs qualify for 1031 exchanges under Rev. Rul. 2004-86, the benefits and trade-offs, how DSTs replaced TICs, and whether a DST fits your exchange — so you can decide whether a DST suits your goals and, if so, access suitable offerings.
DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors, and any recommendation follows a suitability review of your financial situation, goals, and risk tolerance. Baker 1031 does not provide tax or legal advice — your CPA and attorney handle your specific 1031 eligibility, the tax treatment, and the estate-planning details, which are technical and time-sensitive. We help you understand the DST structure, weigh DSTs against your other options, evaluate the underlying real estate, sponsor, leverage, and fees of an offering, and, when a DST is suitable, access it and coordinate with your tax professionals to meet the 45-day and 180-day deadlines. Distributions and returns are never promised — projections are not guarantees, the value of the underlying real estate can fluctuate, and past performance does not guarantee future results. Our role is to help you understand DSTs clearly and invest only when suitable for your goals and risk tolerance.
Frequently Asked Questions
What is a Delaware Statutory Trust (DST)?
A Delaware Statutory Trust (DST) is a legal entity formed under Delaware law that holds title to income-producing real estate — such as apartments, warehouses, medical offices, or net-lease retail. Rather than owning property directly, investors buy fractional beneficial interests in the trust and receive a proportional share of the rental income and the eventual sale proceeds. A professional sponsor acquires the property, arranges any financing, and handles all operations through a trustee and a master lease, so investors are entirely passive — no tenants, repairs, or decisions to manage. The key feature for real estate investors is that, under IRS Revenue Ruling 2004-86, a beneficial interest in a properly structured DST is treated as a direct interest in real property, so it qualifies as like-kind replacement property in a 1031 exchange. So a DST is a Delaware-law trust that lets investors own institutional real estate passively while deferring capital-gains tax through a 1031, typically over a multi-year hold.
How does a DST work?
A DST works by pooling investor capital into a trust that owns income-producing real estate. A professional sponsor identifies and acquires a property (or portfolio), arranges any non-recourse financing, and places it in a Delaware Statutory Trust. The trust is then divided into fractional beneficial interests, which investors purchase — commonly at minimums of roughly $25,000 to $100,000 for a 1031 exchange. A trustee holds legal title and, through a master-lease structure, a sponsor affiliate operates the property: leasing, managing, and maintaining it. Investors are passive owners; they receive a proportional share of the net rental income as regular distributions, along with pass-through depreciation that can shelter some of that income. After a multi-year hold — often around five to seven years — the sponsor sells the property, and investors receive their proportional share of the proceeds, which they can take, roll into another 1031, or potentially convert into a REIT via a 721 exchange. So a DST works as a passive, professionally managed, fractional ownership structure.
Why does a DST qualify for a 1031 exchange?
A DST qualifies for a 1031 exchange because of IRS Revenue Ruling 2004-86, which ruled that a beneficial interest in a properly structured DST is treated as a direct interest in the underlying real property. A 1031 exchange requires the replacement to be like-kind real property — not a security or an interest in a business entity — so this treatment is what makes a DST interest eligible. To preserve it, the DST must follow strict limitations (often called the 'seven deadly sins') that keep it passive: the trustee can't accept new capital after closing, refinance the debt, reinvest sale proceeds, make more than minor improvements, hold excess cash, over-distribute, or renegotiate leases. A master lease handles active operations so the trust itself stays passive. Because these rules keep each investor in the position of owning real property directly rather than a share of an active business, the interest qualifies as like-kind. So Rev. Rul. 2004-86, plus strict structural compliance, is what makes a DST 1031-eligible.
What are the 'seven deadly sins' of a DST?
The 'seven deadly sins' are the prohibited actions a DST trustee must avoid to preserve the trust's treatment as direct real property ownership under IRS Revenue Ruling 2004-86. They are: (1) the trustee can't accept new capital contributions once the offering closes; (2) it can't renegotiate or refinance the existing debt (with a narrow exception if a tenant goes bankrupt); (3) it can't reinvest the proceeds from selling the property; (4) it can't make more than minor, non-structural improvements; (5) it can't hold or reinvest cash beyond a short-term reserve; (6) it can't distribute more than its current net cash flow; and (7) it can't renegotiate the leases or enter new ones (a master lease handles active leasing instead). These restrictions keep the DST passive enough that each investor is treated as owning real property directly. If a prohibited action genuinely becomes necessary, the DST can convert to an LLC (a 'springing LLC') — but LLC interests aren't 1031-eligible, so that path ends the deferral chain.
What is a fractional beneficial interest in a DST?
A fractional beneficial interest is your ownership stake in a DST. When you invest, you don't receive a deed to a specific unit or portion of the building; instead, you buy an undivided beneficial interest in the entire trust, sized to your investment. If you invest $500,000 in a DST holding a $50 million property, you own roughly 1% of the beneficial interests and are entitled to roughly 1% of the income, the eventual sale proceeds, and the pass-through depreciation. The interest is passive — you have no voting rights or management control, since the sponsor and trustee make all decisions, which is what keeps the structure compliant with the IRS rules that make DST interests 1031-eligible. Because interests are fractional, a single DST can have many investors (with no statutory cap, unlike the older TIC structures), and minimums can stay relatively low — commonly around $25,000 to $100,000. So a beneficial interest is a proportional, passive, undivided slice of the whole trust and its real estate.
What types of property do DSTs hold?
DSTs hold a wide range of institutional-quality, income-producing real estate. Common asset classes include multifamily apartment communities, industrial and logistics warehouses (driven by e-commerce), net-lease retail (single-tenant properties leased to creditworthy national tenants), medical office and healthcare buildings, self-storage facilities, student housing, senior housing, and sometimes hospitality or specialized properties. Many DSTs hold a single large property, while others hold a small portfolio of similar assets across multiple markets for built-in diversification. The properties are typically larger and more institutional than an individual 1031 investor could buy alone, which is part of the appeal — fractional ownership gives access to assets and tenants that would otherwise be out of reach. Because you can split your exchange proceeds across several DSTs, you can diversify by asset class, geography, sponsor, and debt level. So DSTs span most major commercial real estate sectors, letting a 1031 exchanger build a diversified, passive replacement portfolio from institutional assets. The specific mix of available offerings changes over time as sponsors bring new properties to market.
What are the minimum investment and accreditation requirements for a DST?
DST minimums for a 1031 exchange are commonly in the range of roughly $25,000 to $100,000, though they vary by offering — the relatively low minimums are part of what makes diversification across multiple DSTs practical. Because DST interests are securities offered under Regulation D (often Rule 506(c)), they're generally available only to accredited investors. To be accredited as an individual, you generally need annual income above $200,000 (or $300,000 jointly with a spouse) in each of the prior two years with a reasonable expectation of the same, or a net worth above $1 million excluding your primary residence. Certain entities and people holding specified professional licenses can also qualify. Under Rule 506(c) offerings, which permit general solicitation, the sponsor must take reasonable steps to verify your accredited status. Beyond accreditation, a suitability review confirms the investment fits your financial situation, goals, and risk tolerance. So a DST requires accredited status, satisfies a minimum (often $25k-$100k), and follows a suitability review before you invest. Confirm the current thresholds, which can change.
Are DSTs liquid? Can I sell my interest early?
No — DSTs are illiquid, and you generally can't sell your interest early. There's no established secondary market for DST beneficial interests, so once you invest, you're typically committed until the sponsor sells the underlying property, which commonly happens after a multi-year hold (often around five to seven years, though it's at the sponsor's discretion). In limited situations a private resale might be possible, but it's not something to count on, and any sale could be at a discount. This illiquidity is a defining feature of DSTs and a key reason they suit only investors who don't need access to their capital during the hold. It's also part of what makes a DST work for a 1031 exchange — you're committing to a real, long-term real estate investment, not a tradable security. So you should treat DST capital as locked up for the duration of the hold. If you might need the money in the near or medium term, a DST is generally not appropriate. Review the expected hold period and exit plans before investing.
How does a DST help me replace debt in a 1031 exchange?
A DST helps you replace debt because its non-recourse financing passes through to investors proportionally, without requiring you to personally qualify for or sign on a new loan. In a 1031 exchange, you generally must replace both the equity and the debt from your relinquished property to fully defer your gain — if you had a $1 million property with a $400,000 mortgage, your replacement typically needs equal or greater equity and equal or greater debt (or additional cash to make up any shortfall). Buying a property outright would require you to qualify for new financing, which can be difficult or slow. A leveraged DST already carries non-recourse debt at the trust level, and your share of that debt counts toward your replacement debt requirement — so you can match your old loan's debt simply by investing in a DST with the appropriate loan-to-value, with no personal loan application, credit check, or recourse liability. So DSTs make debt replacement easy and fast. Coordinate the exact equity and debt targets with your QI and CPA.
How fast can a DST close, and why does that matter?
A DST can often close in a matter of days, which matters enormously for the 1031 timeline. A 1031 exchange imposes two strict deadlines: you must identify replacement property within 45 days of selling your relinquished property, and you must close on it within 180 days. Buying a property directly can take weeks or months — negotiating, financing, inspecting, and closing — and if the deal falls through after day 45, you may have no time to find and close on a replacement, which can blow up the entire exchange and trigger the tax. A DST sidesteps this: the property is already acquired, financed, and packaged by the sponsor, so you can typically subscribe and close within days, well inside the deadlines. This speed makes DSTs a reliable backup identification and a practical primary choice when the clock is tight. So DSTs close fast because the heavy lifting is already done, which protects your exchange against the 45-day and 180-day deadlines. Still coordinate timing with your qualified intermediary.
How did DSTs replace the TIC structure?
DSTs replaced tenant-in-common (TIC) structures by solving the problems that made TICs unwieldy. In a TIC, each investor holds a separate, deeded fractional interest as a co-owner, the IRS limited the arrangement to no more than 35 investors, lenders treated each co-owner as a separate borrower, and major decisions like selling or refinancing typically required unanimous or near-unanimous consent. That created friction: financing up to 35 borrowers was cumbersome, and a single holdout could stall a sale. The DST, validated for 1031 use by IRS Revenue Ruling 2004-86, fixed these issues — a single trust holds title and is the sole borrower, there's no cap on the number of investors, and investors have no voting rights at all, so the sponsor and trustee make every decision. This makes DSTs far easier to finance, scale, and govern, which is why they have largely displaced TICs for passive 1031 replacement property. So the DST removed the investor cap, consolidated borrowing, and eliminated the consent gridlock that hampered TICs.
What happens at the end of a DST's hold period?
At the end of a DST's hold — commonly around five to seven years, at the sponsor's discretion — the sponsor sells the underlying property, the trust is wound down, and investors receive their proportional share of the net sale proceeds. This is often called the DST going 'full cycle.' At that point you have choices. You can take the proceeds in cash and pay the capital-gains tax you've been deferring (plus any depreciation recapture). You can roll the proceeds into another 1031 exchange — into another DST or other like-kind real property — to keep deferring the tax. Or, if the offering includes a 721/UPREIT option, the property may be acquired by a REIT and your interest converted into operating-partnership units, continuing deferral in REIT form (though once you're in REIT shares, the 1031 chain ends). If you hold the interest until death, heirs generally receive a step-up in basis that can erase the deferred gain. So a DST's end-of-hold offers several paths; plan yours in advance with your CPA.
What are the main risks of investing in a DST?
DSTs carry several real risks. Illiquidity: there's no meaningful secondary market, so you're committed until the property sells, typically years later. No control: the sponsor decides everything, including when to sell, so you can't influence timing or strategy. Sponsor risk: the manager's quality, experience, and financial strength matter enormously, and a weak sponsor can impair returns. Market and tenant risk: rents, occupancy, and property values can decline, and a major tenant's trouble can hurt income. Financing and interest-rate risk: leveraged DSTs carry debt that must be serviced and eventually refinanced or repaid, and rate moves can affect value and refinancing. Fees and load: upfront and ongoing fees reduce the capital working for you. Concentration: a single-property DST is exposed to one asset and market. And distributions are projections, not guarantees — they can be reduced or suspended. So a DST is a real estate investment that can lose value. Diversifying across DSTs, vetting sponsors, and sizing the allocation appropriately help manage these risks but don't eliminate them.
Is a DST right for my 1031 exchange?
A DST may be right for your exchange if you're selling appreciated investment real estate, want to defer the capital-gains tax through a 1031, and are ready to move from active landlording to truly passive ownership. DSTs tend to fit investors who value regular income, want to diversify across institutional assets, don't need access to their capital for several years, and may want to keep deferring (or pass the interest to heirs with a step-up) at the end of the hold. The fast closing also makes DSTs a practical solution when the 45-day clock is running. A DST is less suitable if you need liquidity, want hands-on control, or aren't comfortable with the sponsor controlling the sale timing. Because DST interests are securities, they're generally available only to accredited investors and only after a suitability review confirms the fit. So a DST is right for your exchange if you want passive, diversified, tax-deferred income real estate and can commit for a multi-year illiquid hold. Confirm suitability with your advisor and the tax details with your CPA.
How does Baker 1031 help me understand and invest in DSTs?
We help investors understand how DSTs work — what a Delaware Statutory Trust is, how fractional beneficial interests work, why DSTs qualify for 1031 exchanges under Rev. Rul. 2004-86, the benefits and trade-offs, how DSTs replaced TICs, and whether a DST fits your exchange — so you can decide whether a DST suits your goals and, if so, access suitable offerings. DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors, and any recommendation follows a suitability review of your situation, goals, and risk tolerance. Baker 1031 does not provide tax or legal advice — your CPA and attorney handle your 1031 eligibility, tax treatment, and estate-planning details. We help you understand the structure, evaluate an offering's real estate, sponsor, leverage, and fees, and, when suitable, access it and coordinate with your tax professionals to meet the 45-day and 180-day deadlines. Distributions and returns are never promised; projections aren't guarantees, and past performance doesn't guarantee future results. We help you invest only when a DST is suitable for you.
Glossary
- Delaware Statutory Trust (DST)
- A Delaware-law trust holding income-producing real estate for fractional investors.
- Beneficial Interest
- An investor's fractional, undivided, passive stake in a DST.
- Rev. Rul. 2004-86
- The IRS ruling treating a DST interest as direct real property.
- 1031 Exchange
- A tax-deferred swap of like-kind investment real property.
- Like-Kind Property
- Investment real property eligible to be exchanged under §1031.
- Seven Deadly Sins
- The prohibited DST actions that would break Rev. Rul. 2004-86 treatment.
- Master Lease
- The lease structure that lets a passive DST handle active operations.
- Springing LLC
- A DST's conversion to an LLC if a prohibited action becomes necessary.
- Sponsor
- The firm that acquires, structures, and manages the DST property.
- Trustee
- The party holding legal title to the DST's real estate.
- Tenant-in-Common (TIC)
- An older co-ownership structure DSTs largely replaced.
- Non-Recourse Debt
- DST loan debt that passes through without personal liability.
- Accredited Investor
- An investor meeting income or net-worth thresholds for Reg D offerings.
- Regulation D
- The SEC exemption under which DST securities are offered.
- Full Cycle
- The point when a DST sells its property and pays out investors.
- Step-Up in Basis
- The §1014 basis reset at death that can erase deferred gain.
Sources & References
- IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- Cornell Legal Information Institute. 26 U.S. Code § 1031 — Exchange of real property held for productive use or investment
- IRS. Like-Kind Exchanges — Real Estate Tax Tips
- State of Delaware. Delaware Statutory Trust Act (Title 12, Chapter 38)
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.
