1031 exchanges can be structured through Delaware Statutory Trusts (DSTs), investment vehicles that are used to hold commercial real estate assets. DSTs can offer accredited investors an effective real estate investment solution with a number of potential benefits.

What is a Delaware Statutory Trust (DST)?

Some investors are ready to sell their properties and complete a 1031 exchange but don’t want to be burdened with the responsibility of owning and managing another property. This is where a Delaware Statutory Trust (DST) comes in. A DST is a legal entity formed under Delaware law that allows investors to take a fractional ownership interest in professionally managed real estate throughout the United States. Individuals or certain entities can buy an interest in a DST that owns real estate in various types of properties, including multi-family apartments, distributions centers, hospitals, commercial rentals, and senior and student housing.

In 2004, the IRS held in Revenue Ruling 2004-86 that DSTs qualified for 1031 like-kind exchanges, so investors can now replace their property with an interest in a DST. DSTs are popular among investors because of aging demographics, low investment returns from traditional banking investments, and appreciated real estate values, among other factors. It’s important to remember that the 45- and 180-day periods, as well as use of a Qualified Intermediary (QI), still applies for the 1031 transaction. If an investor is having difficulty identify a property for a like-kind exchange, or no longer wants the headache of managing rental property, the replacement property can be an interest in a DST to qualify for the tax deferral.

Delaware Statutory Trusts (DSTs) can be a good solution to common 1031 Exchange challenges. Learn more about the benefits of DSTs.