--- title: What Is a DST and Can It Be Used in a 1031 Exchange?—Stax Capital description: What is a DST? Find out how Delaware Statutory Trusts can be utilized in a 1031 exchange to defer taxes and diversify your real estate portfolio! image: https://staxai.com/hubfs/Blog%20Images/Golos/What%20is%20a%20DST%20and%20can%20it%20qualify%20as%20a%201031%20replacement%20property%20%281%29.png --- [Blogs](https://staxai.com/blog)|DST| What is a DST and can it qualify as a 1031 replacement property? ###### Quick Links # What is a DST and can it qualify as a 1031 replacement property? ![](https://staxai.com/hs-fs/hubfs/Blog%20Images/Golos/What%20is%20a%20DST%20and%20can%20it%20qualify%20as%20a%201031%20replacement%20property%20%281%29.png?width=1810&height=1034&name=What%20is%20a%20DST%20and%20can%20it%20qualify%20as%20a%201031%20replacement%20property%20%281%29.png) ![author image](https://app.hubspot.com/settings/avatar/d41d8cd98f00b204e9800998ecf8427e) ##### [Editor at Stax Capital](https://staxai.com/blog/author/editor-at-stax-capital) DST ###### Share: URL copied! Andrew Carnaby's statement that [90% of millionaires](https://www.cnbc.com/2019/10/01/real-estate-is-still-the-best-investment-you-can-make-today-millionaires-say.html) build their wealth from real estate has become famous over time. Said at the turn of the century, this insight still holds true today. However, back in the late 1800s, things were a little different. There was no capital gains tax for one, as this was only [instituted in 1913](https://www.investopedia.com/articles/tax/10/history-taxes.asp). Of course, capital gains tax or not, real estate is still a promising investment type. What's more, capital gains tax can be minimized through informed tax planning strategies. The use of DSTs is one example of this. But **what is a DST 1031 exchange**? **Delaware Statutory Trusts (DSTs)** provide real estate investors with a **passive investment structure** that can qualify as **1031 exchange replacement properties**. If you are looking to **defer capital gains taxes** and reinvest into **DST investment opportunities**, continue reading to find out how **DST 1031 real estate** can work as part of your strategy. #### **What Is a DST?** A **Delaware Statutory Trust offering** or DST is a legal** real estate** entity designed for conducting business activities. Contrary to its name, **Delaware Statutory Trust properties** are not registered exclusively in Delaware. DSTs are also known in some instances as **unincorporated business trusts** or **UBOs**. Similar to LLCs,  DSTs allow investors to **own fractional shares** in **professionally managed commercial real estate**. This enables **passive real estate investment** while providing potential tax benefits through a **DST 1031 exchange**. DSTs also provide **trust investors** with limited liability while offering exposure to **commercial real estate** assets. Unlike traditional real estate investments, **DST investors** do not directly manage the property. Instead, a sponsor oversees **DST investment management**, handling asset performance, lease agreements, and property maintenance. #### **Do DSTs Quality as 1031 Exchange Property?** Yes, **DST investment opportunities** qualify under **section 1031** as a **like-kind property** for **1031 exchange investors**. The IRS officially recognized **DST 1031 exchange** structures under **Revenue Ruling 2004-86**, making them **eligible for 1031 exchanges**. However, [**1031 exchange requirements**](https://staxai.com/blog/requirements-for-1031-exchange) specify that **Delaware Statutory Trust properties** are only available to **accredited investors**. To **qualify as a like-kind property**, a **DST investment** must be structured correctly, meeting the requirements for **conducting a 1031 exchange**. **DST allows real estate investors** to reinvest in **1031 exchange properties** while benefiting from the **passive nature of a DST**. Unlike traditional **real estate investment firm** models, a **DST can also** provide access to [**commercial real estate** ](https://staxai.com/blog/residential-vs-commercial-real-estate-investing)that might otherwise be out of reach. #### **1031 Exchanges Explained** If you are unfamiliar with **1031 exchanges and DSTs**, let’s quickly examine how they work and what their requirements are. A **1031 exchange investor** can **sell the property** and defer [capital gains](https://staxai.com/blog/capital-gains-and-depreciation-recapture) tax by reinvesting in **eligible 1031 exchange** assets. This enables **real estate investors to defer paying** taxes, increasing potential **tax benefits**. If you are unfamiliar with 1031 exchanges, let's quickly take a look at how they work and what their requirements are. In a nutshell, 1031 exchanges allow for [real estate property](https://staxai.com/blog/real-estate-investing) to be sold without attracting immediate capital gains tax. Any applicable capital gains tax is deferred, allowing investors to enhance the growth potential of their portfolios. A further benefit is properties purchased through a 1031 exchange can be passed down to heirs tax-free. However, there are a number of requirements for 1031 exchanges. These include: - Proceeds from the sale of the real estate have to be reinvested in "like-kind" replacement property (properties that are considered similar) - The replacement property or properties have to be identified within 45 days from the sale of the previously held property - The replacement property or properties need to be successfully closed on within 180 days - Replacement property has to be utilized for investment purposes or business purposes The **passive nature of a DST** makes it an attractive option for many **real estate investment firm** clients, allowing them to diversify their **trust investments**.  Identifying qualifying replacement property, conducting due diligence on the property, and closing on it within the required time frames can be difficult. DST 1031 investments can, however, remove some of the obstacles involved in a 1031 exchange. Let's take a look at some of the pros and cons associated with DST property investment. #### **Pros and Cons of 1031 Exchanges via DST Properties** A **DST 1031 investment** comes with several advantages, making it a preferred option for **tax-deferred real estate investing**. However, as with any investment, **DST investments** also come with potential drawbacks. Below are the pros and cons investors should be aware of when considering DST property. #### **DST Investment Pros** DST property investment poses a number of advantages. DST investors can enjoy the benefits of 1031 exchanges, with fewer hurdles, and minimized risk of exchange failure. DST property investment allows for enhanced diversification and reduced personal management duties. #### **Streamlined 1031 Exchanges** The overarching benefit of DST investments is that [1031 exchanges](https://staxai.com/blog/1031-dst-exchanges-steps/) can be accomplished in a streamlined manner, providing that the DST investors find a properly structured DST product. When investing in a well-managed DST, investors can enjoy the tax shelter of a 1031 exchange without the legwork of identifying, investigating, and closing on qualifying properties. Without the pre-established framework of a DST investment, investors run the risk of disqualifying their 1031 return due to factors outside of their control. #### **Zero Property Management Duties** Properties that are owned by DSTs are typically managed in full. This means that DST investors enjoy monthly income from their investment, without the need for hands-on management. Property management can be a significant drawback of real estate ownership. Dealing with tenants and property maintenance can be a full-time job in and of itself. With structured DSTs, investors do not have to worry about this aspect. Instead, all property management tasks are handled by the trust. #### **Opportunity for Portfolio Diversification** Another benefit of DST properties is the entry point for DST investment can be significantly lower than when buying total ownership of a property. DST investments often consist of multifamily assets, mixed-used property, office space, and CRE assets. These types of real estate assets are often out of reach for private investors. DST investments, on the other hand, typically start at a minimum value of $100,000. This means that DST investors can buy into a property with less capital. This also facilitates diversification, where buyers can choose to invest multiple properties types simultaneously. #### **DST Property Cons** While investing in a DST 1031 property has many advantages, there are also several potential cons. These include a loss of control, illiquidity, and market and financial risks. #### **Loss of Control** For some investors, having full property management might not be ideal. Thanks to the structure of DSTs, investors are not able to manage the affairs of the real estate investment. In many cases, this can be a substantial bonus. However, if investors disagree on the way property management is carried out, this can become a point of conflict. #### **Illiquidity** Another potential drawback to investing in DST property is its illiquid nature. DST property is normally only sold once the DST has completed its cycle, and there is no public market for ownership interests. In some situations, an investor may be able to sell early. However, this is not guaranteed. Therefore, DST investments are only suitable if you are looking to invest for long-term gain, typically over 5-10 years. #### **Market Risk** DST's or Delaware Statutory Trusts are real estate investments and therefore subject to all the risk related to real estate ownership. Some of these include occupancy, local employment base, rent collections, general economic risk, etc. #### **Financing** DST's usually employ the use of leverage to help investors meet their 1031 loan replacement requirements. Whenever leverage is part of a real estate purchase, it opens up the property to a potential foreclosure if at some point the property cannot generate enough net income to make ongoing loan payments. #### **Would You Like to Know More About DST Investments?** Now that you know the answer to "What is a DST," are you interested in learning more about potential DST investments? If so, you have come to the right place. We specialize in DST property and real estate investment and are here to help you with your alternative investment journey. Do your portfolio a favor and find out more about our [DST investment offerings](https://staxai.com/dst/). We pride ourselves in providing open and honest investment information and opportunities that facilitate our clients' financial freedom. If you have any questions about DST investing, please do not hesitate to [reach out](https://staxai.com/contact-us) and we will be happy to assist you. ## Frequently Asked Questions ##### What is the purpose of a DST? A **Delaware Statutory Trust (DST)** allows multiple investors to own a share of a large commercial property, like an office building or apartment complex. It is commonly used in **1031 exchanges**, which let investors sell a property and reinvest in another without paying immediate taxes on the profit. A DST helps investors pool money together, diversify their holdings, and avoid the hassle of directly managing a property. ##### What is the difference between a REIT and a DST? A **Real Estate Investment Trust (REIT)** is like a stock—investors buy shares of a company that owns and manages real estate. A REIT often owns multiple properties, and investors get regular dividends. A **DST**, on the other hand, is a trust that owns a single property (or a few properties). Investors own a direct share of the real estate, which makes it a popular option for **1031 exchanges**. Unlike REITs, DSTs don’t pay dividends, but investors get a portion of the rental income and potential appreciation when the property is sold. ##### How to start a DST? To start a **DST**, follow these steps: 1. **Set up a legal trust** – Work with attorneys and financial experts to create a **Delaware Statutory Trust** following legal guidelines. 2. **Choose the property** – Identify a commercial real estate property that will generate steady income. 3. **Structure financing** – Secure funding from investors and lenders. 4. **Offer shares to investors** – Investors buy fractional ownership in the trust, just like buying shares of a property. 5. **Manage the property** – A professional company oversees rent collection, maintenance, and finances while investors collect passive income. ##### What is an example of a DST? An example of a **DST** could be an investment in a **large apartment complex**. Let’s say a real estate firm purchases a 200-unit building for $50 million. Instead of one person buying the entire property, the firm sets up a **DST** and allows multiple investors to buy shares. These investors receive a portion of the rental income and a share of the profits when the property is eventually sold. ##### Who can invest in a DST? DSTs are usually open to **accredited investors**—people who meet specific financial requirements, such as: - Having a **net worth of $1 million** (excluding their primary home) - Earning at least **$200,000 per year** ($300,000 for couples) Because DSTs involve commercial properties and long-term investments, they are best suited for experienced investors looking for passive income and tax benefits through **1031 exchanges**. ## Similar Blogs [![](https://staxai.com/hubfs/721%20Exchange%20Rules-What%20Every%20Real%20Estate%20Investor%20Should%20Know.png) ](https://staxai.com/blog/721-exchange-rules) 721 5 min. Read ##### [721 Exchange Rules: What Every Real Estate Investor Should Know](https://staxai.com/blog/721-exchange-rules) What if you could exchange your real estate for ownership in a professionally ma... [Read More](https://staxai.com/blog/721-exchange-rules) [![](https://staxai.com/hubfs/Blog%20Images/Golos/Real%20Estate%20Investment%20Trusts%20vs%20Delaware%20Statutory%20Trust.png) ](https://staxai.com/blog/reits-vs-dsts/) DST 6 min. Read ##### [Real Estate Investment Trusts vs Delaware Statutory Trust](https://staxai.com/blog/reits-vs-dsts/) There are various ways to invest and take advantage of possible benefits in the ... [Read More](https://staxai.com/blog/reits-vs-dsts/) [![](https://staxai.com/hubfs/stax%20blog%20featured%20image-02.jpg) ](https://staxai.com/blog/how-does-721-exchange-work) 5 min. Read ##### [How Does 721 Exchange Work? Everything You Need to Know](https://staxai.com/blog/how-does-721-exchange-work) Selling an investment property often comes with a big tax bill. But what if you ... [Read More](https://staxai.com/blog/how-does-721-exchange-work) ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "Editor at Stax Capital", "url" : "https://staxai.com/blog/author/editor-at-stax-capital" }, "dateModified" : "2025-03-19T13:52:04.441Z", "datePublished" : "2024-10-23T17:53:14.000Z", "headline" : "What Is a DST and Can It Be Used in a 1031 Exchange?—Stax Capital", "image" : [ "https://staxai.com/hubfs/Blog%20Images/Golos/What%20is%20a%20DST%20and%20can%20it%20qualify%20as%20a%201031%20replacement%20property%20%281%29.png" ], "mainEntityOfPage" : { "@id" : "https://staxai.com/blog/what-is-a-dst/", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject" } } } ```