Does a Delaware Statutory Trust (DST) Qualify for 1031 Exchange?
The Delaware Statutory Trust (DST) is an investment vehicle for fractional ownership in institutional-quality real estate. Formed by a third party sponsor, DSTs can include several asset types, including multifamily, office, industrial, and/or retail. Despite the name, neither the property nor the investors need to be located in Delaware.
Per IRS Rev Ruling 2004-86, DSTs qualify as replacement property in a 1031 Exchange.
When properly structured, the Delaware Statutory Trust is classified as a grantor trust for federal income purposes, where the investors are the beneficiaries, and the sponsor is the grantor. The purchaser of a beneficial interest in the trust will acquire an undivided interest in the assets held by the DST. Because investors in the DST own a direct interest in the real property in proportion to their investment percentage, their investment qualifies as replacement property under the like-kind exchange rules of a 1031 Exchange.
Sacramento and California accredited investors in or considering a 1031 Exchange can benefit from understanding how a DST might fit their unique needs and provide a suitable solution to their exchange situation. At Legacy Investments & Real Estate, we guide real estate investors through the 1031 Exchange process, helping identify and secure replacement properties that align with the legacy they want their investments to build.
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There are material risks associated with investing in private placements, Delaware Statutory Trusts (“DSTs”) and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Legacy Investments & Real Estate is independent of CIS and CAM.