Investing
1031 Exchanges and Delaware Statutory Trusts: What Investors Need to Know
Global Banking and Finance Review
Company
When you buy a Delaware Statutory Trust (DST) as part of a 1031 exchange, you unlock one of the most effective ways to defer capital gains taxes while staying invested in real estate. A 1031 exchange is a powerful strategy if you want to keep more of your money working for you, especially if you pla...
When you buy a Delaware Statutory Trust (DST) as part of a 1031 exchange, you unlock one of the most effective ways to defer capital gains taxes while staying invested in real estate. A 1031 exchange is a powerful strategy if you want to keep more of your money working for you, especially if you plan to grow your portfolio or simplify your holdings.
DSTs let you own a fractional share of institutional-grade properties with none of the landlord duties. For investors seeking steady income and diversification, DSTs offer a streamlined, tax-efficient alternative that complies with IRS rules.
A 1031 exchange involves deferring capital gains taxes by reinvesting sale proceeds into a “like-kind” property. Usually, selling investment real estate triggers a taxable event, but if the swap meets IRS requirements under Section 1031, you may owe little to no tax at the time of the exchange. That said, the process comes with strict deadlines. You must identify potential replacement properties within 45 days and close on one or more of them within 180 days.
These compressed timelines often create pressure, especially when you try to find high-quality, qualifying properties that align with your financial goals. Many investors struggle with limited inventory or mismatches in property type or value. Structured options like DSTs can provide access to pre-qualified assets that meet IRS rules while reducing the burden of searching.
When you buy a DST, you open the door to institutional-grade real estate opportunities without the burden of active management. This trust is a legal structure that qualifies as replacement property in a 1031 exchange, allowing you to defer capital gains taxes while enjoying passive income. Instead of owning an entire property yourself, you own a fractional interest alongside other investors, with day-to-day operations handled by experienced asset managers.
This model makes high-value assets more accessible, since the financial commitment is much lower than full ownership. Fee-only fiduciaries like Sera Capital help clients identify and invest in DSTs that align with their goals without earning commissions on products they recommend. For investors seeking diversification and tax efficiency, Sera Capital (change to: the wealth management firm) offers clear, unbiased guidance at every step.
A 1031 exchange using a DST begins when you sell your investment property and reinvest the full proceeds into DST shares. DSTs are pre-packaged and ready for closing, eliminating the stress of property tours and negotiations.
For example, suppose you sell a rental home for $800,000. Instead of buying another property and managing tenants, you allocate the proceeds across three DSTs — maybe a multifamily complex, a distribution center and a medical office — all professionally managed and producing monthly income. This satisfies IRS timelines, diversifies your portfolio and reduces risk. Many investors choose DSTs for these reasons, and advisors like Sera Capital help match you with vetted options aligned with your goals and risk profile.
When you buy a DST, you step away from the hands-on demands of managing a rental property and into a passive investment model that prioritizes simplicity and diversification. Unlike direct ownership, where you’re responsible for maintenance and financing decisions, DSTs are professionally managed, giving you time back and reducing stress. They also allow you to spread your investment across different regions and property types, helping to cushion against market volatility.
For example, refinancing or selling a property can become difficult if the economy slows down or interest rates rise. However, with a DST, your exposure is spread out, which can soften the impact of declining property values in one sector. For many investors, especially those approaching retirement or simplifying their portfolios, DSTs offer a strategic way to maintain real estate income without the operational headaches.
DSTs are especially useful for investors who are ready to transition out of active property management. If you sell a rental property and no longer want to handle maintenance or tenants, DSTs offer a tax-efficient way to stay invested in real estate. Retiring landlords often use DSTs to reduce their workload while still generating income during retirement.
Estate planners also find value in DSTs because fractional ownership can be divided easily among heirs, and the structure eliminates the hassle of jointly managing a single property. DSTs are ideal when the goal is to preserve wealth or streamline a legacy plan. With Sera Capital’s guidance, investors can build a DST portfolio that fits their current needs and long-term goals.
When you’re considering where to buy a DST, it’s critical to work with a fiduciary rather than someone earning commissions from DST sales. A fiduciary is bound to act in your best interest, so they can’t put their own financial gain ahead of your goals. In contrast, some DST providers may steer clients toward products that pay them the highest commissions, even if better-suited options exist.
Firms such as Sera Capital, which operate on a fee-only fiduciary basis, support investors navigating these structures.
As a fee-only fiduciary, it doesn’t receive product-based compensation and focuses entirely on aligning investment strategies with your specific needs. Over 90% of its business is dedicated to DST and 721 exchange planning, providing you with deep expertise and customized advice. Fee-only advisory models are often preferred by investors seeking alignment and clarity in product selection that puts your financial strategy at the center of every recommendation.
The IRS has officially recognized DSTs as a valid replacement property for 1031 exchanges since 2004. Still, it’s important not to mistake recognition for guaranteed safety. Like any real estate investment, DSTs carry inherent risks, including market shifts and economic downturns. They’re not immune to interest rate hikes or declining property values. It’s also a mistake to assume all DSTs are created equal, as manager experience, property type and market location all influence performance.
When you buy a DST, you need to look beyond the surface and evaluate what you’re really getting. That’s why advisory support matters. A trusted fiduciary can help you filter out biased product pushes and guide you toward DSTs that align with your specific goals and risk tolerance.
A DST pairs seamlessly with a 1031 exchange, which helps you defer capital gains taxes while generating steady, passive income from professionally managed real estate. When you buy a DST, you gain access to high-quality assets without the stress of hands-on ownership. Working with fiduciary advisors ensures you receive expert, conflict-free guidance so you can explore your DST and 1031 options with clarity and long-term alignment.
A 1031 exchange is a tax-deferral strategy that allows investors to sell a property and reinvest the proceeds into a similar property without paying immediate capital gains taxes.
A Delaware Statutory Trust (DST) is a legal entity that allows multiple investors to own fractional interests in real estate, providing a way to invest in properties without direct management responsibilities.
Capital gains taxes are taxes imposed on the profit from the sale of an asset, such as real estate, when the asset's selling price exceeds its purchase price.
Passive income is earnings derived from rental properties, investments, or other ventures in which a person is not actively involved in the day-to-day operations.
Explore more articles in the Investing category
