A Delaware Statutory Trust (DST) is a legal entity that allows multiple investors to own fractional shares in large, income-producing real estate properties such as apartment complexes, medical buildings, shopping centers and many others.



DSTs are commonly used in 1031 exchanges because they qualify as “like-kind” property. This means you can sell your investment property, defer capital gains taxes, and reinvest into a DST without managing the property yourself.



Key points:

• Passive ownership: All management is handled by a professional sponsor, not the investor.
• Passive Income: Most DSTs will generate income on a monthly basis that goes to investors.
• Diversification: Your investment may be spread across multiple properties or locations.

DSTs are only available for accredited investors and are ideal for those wanting to defer taxes, have passive ownership, and generate potential income without the headaches of being a landlord.

Imagine you own a rental house (or any other investment property), and you want to sell it, but you don’t want to or can’t find a replacement house (property) to buy.  If you just sell it, you'll likely pay substantial capital gains taxes on the profit.

Avoid those taxes with a 1031 DST. Instead of buying another house (property), you can:

1. Sell your rental house.
2. Instead of taking the cash, you invest that money into a 1031 DST.
3. Your 1031 DST owns a share of a big, professionally managed property (like a giant apartment building, a distribution center, or several other types of real estate).
4. You get passive income and depreciation from the property.
5. Through the DST you've deferred paying those capital gains taxes.

Why people use it:

• Tax Deferral: The biggest reason – avoid immediate capital gains taxes.
• Passive Income: You get income from the property without the headaches of managing it yourself (tenants, repairs, etc.). The DST is professionally managed.
• Diversification: You can invest in a piece of a larger, commercial real estate asset.
• Fractional Ownership: Allows you to participate in large real estate deals with smaller amounts of capital.

In essence, a 1031 DST is a way to "trade up" your real estate investment, defer taxes, and potentially enjoy more passive income from a professionally managed property.

Step 1: Decide to Sell Investment Property
You own investment real estate and decide it's time to sell— perhaps to retire, simplify your life, or step away from active management.

Step 2: Engage a Qualified Intermediary (QI)
To defer capital gains taxes using a 1031 exchange, you must use a Qualified Intermediary. The QI holds the sale proceeds so you don’t receive them directly (which would trigger taxes).

Step 3: Sell the Property
Your investment property is sold. The proceeds go to the QI, not to you.

Step 4: Identify Replacement Property
Within 45 days, you must identify replacement properties. A 1031 DST can be one or more of those options.

Step 5: Invest in a Delaware Statutory Trust (DST)
You use the funds held by the QI to invest in one or more 1031 DSTs. These are institutionally structured and professionally managed real estate properties that qualify for 1031 exchanges. You now receive passive income without being a landlord, and your capital gains tax is deferred.

Step 6: Hold Period
You typically stay invested in the DST for 5–10 years, receiving income and letting the property appreciate. 1031 DSTs are "hands-off" asset; the sponsor manages everything.

Step 7: DST Exit Strategy Options
When the 1031 DST property is eventually sold by the sponsor, you will have several options:

• Another 1031 Exchange: Roll your proceeds into another DST or direct real estate and keep deferring taxes.
• 721 Exchange (with advance preparation): If the DST merges with a REIT, you may be able to exchange into REIT Operating Partnership units, deferring taxes and gaining long-term liquidity potential.
• Cash Out: Pay capital gains taxes and exit completely.

A 1031 exchange—named after Section 1031 of the IRS tax code—allows real estate investors to sell one investment property and buy another “like-kind” property without paying capital gains taxes at the time of sale.

To qualify:

• The properties must be held for investment or business use (not personal residences).
• A Qualified Intermediary (QI) must be used to hold the sale proceeds—you cannot take possession of the money.
• You have 45 days to identify a new property and 180 days to close on it.

This strategy lets you defer taxes, reinvest the full amount, and at the time of death your heirs will get a  step-up in cost basis allowing them to sell tax free.

A 721 exchange—named after Section 721 of the IRS tax code—lets real estate investors exchange their property for shares in a Real Estate Investment Trust (REIT), without immediately triggering capital gains taxes.

It often works like this:
An investor first completes a 1031 exchange into a Delaware Statutory Trust (DST). After a holding period (usually 5-10 years), the DST can be absorbed into a REIT through a 721 exchange. In return, the investor receives Operating Partnership (OP) units, which can later be converted into REIT shares.

Key benefits:

• Tax deferral: Capital gains taxes are deferred until the REIT shares are sold.
• Liquidity potential: You can immediately pull your cost basis out tax free and/or REIT shares can be sold paying the tax on what's needed.
• Estate planning: If held until death, heirs receive a step-up in cost basis, eliminating the taxes.

A 721 exchange offers a path to long-term, tax-efficient liquidity and fully passive real estate ownership through institutional-grade REITs.