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San Francisco

Delaware Statutory Trusts in a 1031 Exchange

What is a DST and is a DST right for you?

Whenever you sell an investment property and you have a gain, you generally must pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. Section 1031 does not apply to theexchange of securities.​

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With IRS Revenue Ruling 2004-86, a Delaware Statutory Trust (DST), qualifies as an eligible “like-kind” property available for all or part, of your exchange. 

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A Delaware Statutory Trust (DST) permits fractional ownership where multiple investors can share ownership in a single property or a portfolio of properties, which qualifies as replacement property as part of an investor’s 1031 exchange transaction. A DST takes all decision-making out of the hands of investors and places it into the hands of an experienced sponsor-affiliated trustee.

Apartment

Types of properties a DST may invest in:

Multifamily Apartments
Single Family Rental Communities
Self Storage Facilities
Retail centers
Industrial Warehouse
Student Housing

Benefits of a DST include:

Can relieve the burden of active real estate ownership
Obtain ownership in commercial property leased by large corporate tenantsand/or multi-family residential properties throughout the U.S.
Diversify your real estate portfolio by geography and sector
Flexibility to invest in one or multiple offerings
Helps facilitate Estate Planning and Wealth Transfer

Important Risk Factors to Consider:

An investment in an DST-sponsored program is subject to various risks, including but not limited to:
 

  • No public market currently exists, and one may never exist, for the interests of any DST-sponsored program. The purchase of interests in any DST sponsored program is speculative and is suitable only for persons who have no need for liquidity in their investment and who can afford to lose their entire investment.

  • DST-sponsored programs offer and sell interests pursuant to exemptions from the registration provisions of federal and state law and, accordingly, those interests are subject to restrictions on transfer.

  • There is no guarantee that the investment objectives of any particular DST-sponsored program will be achieved.

  • The actual amount and timing of distributions paid by DST-sponsored programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital.

  • Investments in real estate are subject to varying degrees of risk, including, among other things, local conditions such as an oversupply of space or reduced demand for properties, an inability to collect rent, vacancies, inflation and other increases in operating costs, adverse changes in laws and regulations applicable to owners of real estate and changing market demographics.

  • DST-sponsored programs depend on tenants for their revenue, and may suffer adverse consequences as a result of any financial difficulties, bankruptcy or insolvency of their tenants.

  • DST-sponsored programs may own single-tenant properties, which may be difficult to re-lease upon tenant defaults or early lease terminations.

  • The long-term impact of the COVID-19 pandemic and the resulting global financial, economic and social distress remains uncertain.

  • The prior performance of other programs sponsored by DSTs should not be used to predict the results of future programs.

  • The acquisition of interests in an DST-sponsored program may not qualify under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”) for tax-deferred exchange treatment.

  • Certain of the programs previously sponsored by DSTs have experienced adverse developments in the past.

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