RENT Magazine Q1 '22

A recent report by CNBC revealed that between 2016 and 2019, more than 10 percent of all real estate transactions involved a 1031 exchange. However, because of the specific timelines associated with 1031 exchanges, investors often encounter significant problems completing them.


Finding suitable replacement property within the mandated timeframe; Finding the resources to perform the necessary due diligence on the property; Securing bank financing to replace the amount of debt on the original property;

Identifying appropriate properties within the timeframe; Successfully closing on the purchase within the timeframe;

Many of the like-kind exchanges would most likely be sole-ownership properties that would require the owner to be a hands-on owner, eliminating the opportunity for passive ownership.

HOW DOES A DST FIT INTO A 1031 AND ESTATE PLANNING? Helping solve the above 1031 challenges is where the Delaware Statutory Trust comes into play.

this way, each investor owns a “beneficial interest” in the trust which, in turn, owns the underlying property assets. This DST interest entitles the investor to his or her pro-rata share of potential income and appreciation in the DST while avoiding any active management responsibilities. Key takeaways here are that DST ownership not only qualifies as “like-kind” real estate for a 1031 exchange, it also offers the same benefit of a potential step-up in basis while providing some additional generational benefits that other ownership structures don’t. Chief among those advantages is the ability for investors to sell their investment real estate and utilize a 1031 exchange into DSTs to potentially defer taxes, greater flexibility for estate planning, and no active management responsibilities for heirs to assume.

A Delaware Statutory Trust (DST) is an entity that is used to hold title to investment real estate and qualifies as a “like-kind” exchange replacement property for 1031 exchanges according to Revenue Ruling 2004-86. DSTs can be structured as single-property vehicles or have multiple properties in one DST. DSTs are also different types of real estate, like apartments, commercial, industrial/distribution and healthcare/medical. Many DSTs are set up with real estate leased to large national or global companies as well. Much like a REIT (Real Estate Investment Trust), individuals who 1031 exchange into a DST may have partial ownership of multiple properties at one time. In

P A G E 1 2

Powered by