THE EDUCATION SERIES
A plain-English breakdown of the legal structure behind one of the most popular replacement options in a 1031 exchange — what you own, who runs it, and how the tax deferral actually works.
THE STRUCTURE
A Delaware Statutory Trust (DST) is a legal entity, formed under Delaware law, that holds title to one or more real properties on behalf of multiple investors. When you invest in a DST, you purchase a fractional, undivided beneficial interest in the trust — not a direct deed to the property itself. That distinction is exactly what makes a DST interest eligible as ‘like-kind’ replacement property in a 1031 exchange.
A regulated legal structure
DSTs are governed by Delaware statute and IRS Revenue Ruling 2004-86, which spells out exactly how they must be structured to qualify for 1031 treatment.
Institutional-grade real estate
Properties are typically multifamily, industrial, medical, or net-lease assets — the same asset classes large institutions and REITs buy, often unavailable to individual investors.
Professionally sponsored
A DST sponsor acquires the property, arranges financing, and appoints a trustee to manage all day-to-day decisions on investors’ behalf.
THE COMPARISON
The economics are similar. The operational reality is not.
Management
Direct ownership: you. DST: a professional sponsor handles leasing, maintenance, and capital decisions.
Minimum investment
Direct ownership: the full purchase price. DST: often $25,000–$100,000, letting you split exchange proceeds across multiple properties.
Liquidity
Both are illiquid. DSTs are typically held 5–10 years with no guaranteed exit before the sponsor sells.
Diversification
Direct ownership concentrates your exchange in one property. A DST lets you split proceeds across several DSTs and asset classes.
THE TIMELINE
Every 1031 exchange into a DST runs on the same IRS clock, regardless of property type.
01
Close your sale
Proceeds from your relinquished property go directly to a qualified intermediary — you never take possession of the cash.
02
Identify within 45 days
You must formally identify your replacement property or DST interests in writing within 45 calendar days of closing.
03
Close within 180 days
The exchange must fully close — funds moved into your replacement DST interest — within 180 days of your original sale.
04
Receive potential distributions
Once funded, you begin receiving your pro-rata share of any distributions the trust generates, without further action.
WHO'S INVOLVED
A DST sponsor sources and underwrites the property, structures the offering, and typically stays on as asset manager. The trustee holds legal title and executes decisions the sponsor recommends within limits set by the trust agreement. As a beneficial owner, you receive your share of potential income and, eventually, sale proceeds — without holding a landlord’s operational authority or liability.
See why investors are making the switch →QUESTIONS ABOUT THE STRUCTURE
Can I add cash or take on new debt inside a DST?
No. DST offerings are structured with fixed equity and debt at the outset — you can’t contribute additional capital or refinance once you’re in. Any leftover exchange funds not invested in a DST are typically taxable.
What happens when the sponsor sells the property?
You receive your pro-rata share of the sale proceeds, which can then be reinvested in another 1031 exchange or taken as a taxable event — the choice is yours at that point.
Are all DSTs the same?
No. Offerings vary widely by asset class, leverage, sponsor track record, and fee structure. Reviewing the Private Placement Memorandum and sponsor history matters as much as the property itself.
Do I need to be an accredited investor?
Most DST offerings are only available to accredited investors, verified through income, net worth, or professional criteria under SEC rules.
Download the full investor’s guide — deadlines, tax mechanics, and a sponsor evaluation checklist, all in one place.
Get the Free Guide