Home
Schedule a Call
Tired of Being a Landlord? Discover the Delaware Statutory Trust (DST)
Are you a real estate investor ready to sell a property, but dreading the massive capital gains tax bill? You're not alone. The traditional solution—a 1031 Exchange—lets you swap one investment property for another and defer that tax burden. But what if you're exhausted from dealing with "toilets, tenants, and trash"?
Enter the Delaware Statutory Trust (DST): your ticket to passive real estate investment that qualifies for 1031 exchange treatment. It's a game-changer for investors looking to trade management headaches for mailbox money while deferring taxes.
What Exactly is a Delaware Statutory Trust?
At its core, a Delaware Statutory Trust is a formal legal structure created under Delaware law that holds and manages property through trustees for the benefit of its investors. Instead of buying an entire apartment building, commercial office park, or industrial property yourself, a DST is formed to hold it—and you purchase "beneficial interests" in that trust.
Think of it as co-ownership of institutional-grade real estate, without the management responsibilities. The property is professionally managed by a Sponsor, meaning you don't handle maintenance, leasing, or tenant issues.
Separate Legal Entity
Established by filing a certificate of trust with Delaware Division of Corporations with a formal trust agreement.
Fractional Ownership
You own beneficial interests in the trust, not the property deed directly—pooling resources with other accredited investors.
Professional Management
The Sponsor handles all day-to-day operations, freeing you from landlord duties completely.
Pass-Through Taxation
Income and tax benefits like depreciation flow directly through to you, the investor.
Key Takeaway: A DST allows accredited investors to pool money to own high-quality, institutional real estate without having to manage it themselves.
The Perfect Partnership: DSTs and the 1031 Exchange
The reason DSTs are so popular is their unique ability to work with Section 1031 Like-Kind Exchanges—the core strategy for real estate investors seeking tax savings. This partnership solves one of the biggest challenges facing investors during the exchange process.
How a 1031 Exchange Works
Section 1031 of the IRS tax code allows real property investors to defer paying capital gains tax when they swap investment property for other "like-kind" investment property. You're not avoiding the tax—you're pushing it down the road until you eventually sell without doing another exchange.
01
Use a Qualified Intermediary
When you sell your property, the proceeds must be held by a QI. You cannot receive the funds directly or the exchange fails.
02
45-Day Identification Rule
From the day you sell, you have only 45 calendar days to officially identify the replacement properties you intend to purchase.
03
180-Day Closing Rule
You must complete the purchase and close the exchange within 180 calendar days of selling your old property.
The DST Solution: Why It Qualifies
For years, fractional ownership in a 1031 exchange was challenging. Finding a perfect replacement property—especially in a short, 45-day window—was incredibly stressful and often impossible.
The IRS stepped in with Revenue Ruling 2004-86, which officially recognized that fractional beneficial interests in a properly structured DST can qualify as "like-kind" replacement property for a 1031 exchange.

This ruling is the key! You can sell your single property and use the proceeds to purchase beneficial interests in one or more DST offerings—legally deferring your capital gains tax and depreciation recapture.
Strategic Benefits: Why a DST Works for the Modern Investor
For new and seasoned real estate investors alike, using a DST offers several powerful advantages that address common pain points and unlock new opportunities for portfolio growth.
1. Escape Active Management
This is often the biggest draw. Trade the hassle of being a hands-on landlord for passive ownership. The DST sponsor handles day-to-day operations, maintenance, and leasing—freeing up your time for other ventures, retirement, or simply enjoying life.
2. Diversification Made Easy
Instead of sinking all your proceeds into one replacement property with concentrated risk, you can split your exchange proceeds and invest in multiple DSTs. This lets you diversify across different property types—apartments, industrial, retail—and different geographic markets nationwide.
3. Simplify the 45-Day Deadline
Finding, negotiating, and closing on a whole building in 45 days is incredibly tough. DST offerings are pre-vetted, fully leased, and ready for purchase—making it much easier to meet the tight 45-day identification and 180-day closing deadlines required by the IRS.
4. Hit the Numbers Exactly
In a 1031 exchange, you must reinvest all your net sale proceeds and replace equal or greater debt to avoid paying taxes on leftover cash (called "boot"). DSTs allow you to subscribe to a precise dollar amount of interest, making it easier to fill value gaps and ensure a fully tax-deferred exchange.
5. Access Institutional-Grade Assets
Many investors exchange out of smaller, management-intensive properties into larger, professionally managed, institutional-grade assets—like Class A high-rise apartments or major distribution centers—that they couldn't afford or manage on their own.
Important Rules: What Makes a DST Qualify
While DSTs offer tremendous flexibility and benefits, they must operate under very strict rules set by the IRS in Revenue Ruling 2004-86 to maintain their tax status as a fixed investment trust. Understanding these limitations is crucial for investors.
No New Debt
Once the DST is established, the trustee generally cannot obtain new loans or refinance the property. The financing structure is locked in at formation.
No Capital Improvements
The trustee cannot make major structural changes or "significant improvements" to the property beyond normal maintenance and repairs.
Limited Reinvestment
The trustee cannot reinvest proceeds from the sale of any property the DST holds to purchase a new property.

These rules ensure DSTs are treated as holding real property interests, not as a business entity, which might not qualify for 1031 treatment. This "fixed investment" structure is what makes them work within IRS guidelines.
While these restrictions may seem limiting, they're precisely what allows DSTs to maintain their special tax status. The structure provides certainty and predictability for investors while ensuring compliance with federal tax law. Professional DST sponsors understand these rules intimately and structure offerings accordingly.
Is a DST Right for Your Investment Goals?
The Delaware Statutory Trust is a powerful strategy for real estate investors at a critical transition point. It's particularly valuable if you're facing specific challenges or opportunities in your investment journey.
Selling High-Gain Property
You're selling an actively managed property with significant capital appreciation and want to defer the tax bill.
Facing Tight Deadlines
The 45-day identification window is approaching and you need quick, reliable replacement property options.
Seeking Passive Income
You want to transition to passive income without triggering a massive tax bill or giving up real estate investment benefits.
Portfolio Diversification
You're looking to diversify your real estate holdings across property types and geographic markets.
Working with Trusted Professionals
Navigating a 1031 exchange, especially with a DST, requires working closely with experienced professionals including a Qualified Intermediary and tax advisor. Our firm's unique expertise is utilizing DSTs to help you achieve your tax savings goals while positioning you to benefit from continued growth and passive income streams.
We understand the nuances of IRS rules, sponsor selection, property due diligence, and how to structure your exchange for maximum benefit. Our team has guided hundreds of investors through successful DST exchanges, protecting their wealth and simplifying their lives.
Ready to Explore Your Tax Strategy?
If you're selling a property and want to move beyond hands-on management, or if the 45-day deadline is looming, a DST could be your perfect solution. Don't risk your tax deferral by navigating this complex process alone.
Let's find out if a Delaware Statutory Trust is the right move for your unique financial and investment future.
Schedule a Discovery Call with Our Tax Strategy Team
Primary Goal
Exploring a DST to achieve tax savings and passive income while preserving your investment capital.
How to Book
Visit https://calendly.com/cgilcpa/virtual-coffee to schedule your confidential consultation.
Contact Information
Phone: (714) 867-7288
Email: cgil@claudiogilcpa.comStrategy@CPAFirmName.com
Office: 201 N Brand Blvd, Ste 200 Glendale, CA 91203
We look forward to helping you successfully transition to a passive, tax-advantaged investment strategy that aligns with your long-term financial goals.