FAQs
faqs
Most Popular Questions
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What is a 1031 Exchange?
A 1031 Exchange is a provision in the U.S. tax code (Section 1031 of the Internal Revenue Code) that allows you to defer paying capital gains tax when you sell an investment or business property and reinvest the proceeds into another “like-kind” investment property. Instead of recognizing the gain and paying taxes right away, you roll those proceeds into a new property that meets IRS guidelines.
The key idea is “exchange,” not sale. As long as you follow the rules, use a qualified intermediary, respect the deadlines, and reinvest properly, you can keep your money working for you in real estate instead of sending a significant portion to the IRS in the year of the sale.
What is a Delaware Statutory Trust (DST)?
A Delaware Statutory Trust (DST) is a passive real estate ownership structure that allows multiple investors to collectively own institutional-quality real estate. Investors hold a beneficial interest in the trust rather than owning property directly, which makes DSTs eligible as replacement property in a 1031 exchange. DSTs are professionally managed, require no active involvement from investors, and are commonly used by real estate owners seeking passive income, diversification, and tax deferral.
What is the lifecycle of a DST investment?
A DST typically follows a clear lifecycle: acquisition, hold, and exit. After investors close into the DST, the sponsor manages the property and distributes income during the hold period, which is usually 5–10 years, depending on the asset and market conditions. At exit, the property is sold, and investors may receive cash (taxable) or use the proceeds for another 1031 exchange or, potentially, a 721 UPREIT, depending on the structure.
What are the basic rules and deadlines I need to know?
Two timelines are critical in a 1031 Exchange:
45-day identification period
From the date you close on the sale of your old (relinquished) property, you have 45 calendar days to identify your potential replacement property or properties in
writing. This identification must be delivered to your qualified intermediary
or other party allowed under IRS rules.
180-day completion period
You must close on your replacement property or properties within 180 days of the sale of your relinquished property, or by your tax filing deadline (including extensions),
whichever comes first.
These time frames run concurrently, not one after the other. Day 1 of the 45 days and Day 1 of the 180-day period are the same: the day you close on the sale. Missing either deadline will usually disqualify the exchange and trigger immediate
capital gains taxes.
How does income work in a DST?
Income is generated from the underlying real estate, typically from rent collected from tenants, and distributed to investors, most often on a monthly or quarterly basis.
Distributions are not guaranteed and can vary based on property performance, occupancy, expenses, and financing terms. A portion of the income may be tax-referred due to depreciation, depending on your individual tax situation.
What does “like-kind” actually mean?
“Like-kind” sounds strict, but for real estate, it is actually cultivated. In most cases, any investment or business real estate in the U.S. can be exchanged for almost any other investment or business real estate in the U.S.
For example, you can exchange:
- A single-family rental for a small apartment building
- A warehouse for a retail center
- Land held for investment for a rental condo
What you cannot do is exchange personal-use property (like your primary home or a vacation home you mostly use yourself) or property held primarily for resale (like fix-and-flip inventory) in a standard 1031 Exchange. The properties must be held for investment or for use in a trade or business.
Can I touch the money from the sale?
No. If you “touch” or take constructive receipt of the sale proceeds, the IRS will treat it as a taxable sale instead of an exchange. That means you would owe capital gains tax in the year of the sale.
To avoid this, you must work with a qualified intermediary (QI). At closing, the net
proceeds from the sale go directly to the QI, not to you. The QI then uses those funds to purchase the replacement property for you. This structure keeps you from having actual or constructive receipt of the funds and preserves your tax deferral.
Is a DST liquid?
DSTs are considered illiquid investments. There is no public market to sell your interest, and investors should plan to remain invested until the sponsor executes an exit. While limited secondary options may exist, they are uncommon and typically involve discounts, so DSTs should only be used for capital that does not require near-term
liquidity.
What happens to my DST investment when I pass away?
DST interests are inheritable and generally receive a step-up in cost basis upon death, which can significantly reduce or eliminate capital gains taxes for heirs. Beneficiaries will continue receiving income – when the DST sells, they can cash out or do another 1031 exchange. For many investors, DSTs are an effective estate-planning tool for simplifying real estate ownership for heirs.
What fees do DSTs have?
DST fees are generally built into the offering and not billed separately to investors.
These can include acquisition fees, financing costs, asset management fees, and disposition fees, all disclosed in the Private Placement Memorandum (PPM). While fees are higher than owning property directly, investors are paying for professional management, passive ownership, and 1031 eligibility.
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