InvestingRetirementTax Tips
Delaware Statutory Trusts (DSTs): The 1031 Exit Strategy for Tired Landlords
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Result: DST keeps $600k more working for you, generating ~$30k extra annual income.
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Delaware Statutory Trusts (DSTs): The 1031 Exit Strategy for Tired Landlords
CORE INSIGHTS
- Tax Tsunami: Selling a depreciated property triggers massive taxes (Capital Gains + Recapture + NIIT). A DST allows you to “1031 Exchange” into a passive investment, deferring tax indefinitely.
- Passive Income: You swap “Tenants, Toilets, and Trash” for fractional ownership in institutional-grade assets (e.g., Amazon warehouse). You get monthly checks; a sponsor does the work.
- Step-Up Endgame: The goal is to hold DSTs until death. Heirs receive the shares with a stepped-up basis, wiping out the deferred tax liability permanently.
You won the real estate game, but now you’re tired. Selling means writing a huge check to the IRS. The DST is the exit ramp. It lets Accredited Investors retire from landlording without retiring their wealth.
Swap ‘Til You Drop Strategy
- Step 1: Exchange Active Rental → Passive DST ($0 Tax).
- Step 2: Collect ~5% Income for Life.
- Step 3: Die holding DST. Heirs get Step-Up Basis.
- Step 4: Heirs sell Tax-Free.
What-If Scenario: Selling a $2M Property
| Strategy | Tax Bill | Capital Invested |
|---|---|---|
| Cash Out | ~$600,000 (30%) | $1,400,000 |
| 1031 into DST | $0 (Deferred) | $2,000,000 |
Visualizing Wealth Preservation
*Figure 1: Proceeds Comparison. The Green Bar (DST) preserves 100% of your equity.*
Strategic Action Steps
1
Confirm Accreditation
DSTs are private placements. You need $1M+ Net Worth (excl. home) or $200k+ income.
DSTs are private placements. You need $1M+ Net Worth (excl. home) or $200k+ income.
2
Use a QI
Hire a Qualified Intermediary before closing. If you touch the cash, the tax is due.
Hire a Qualified Intermediary before closing. If you touch the cash, the tax is due.
3
Identify in 45 Days
The 1031 clock is strict. DSTs are pre-packaged, making them perfect “fail-safe” options to meet the 45-day deadline.
The 1031 clock is strict. DSTs are pre-packaged, making them perfect “fail-safe” options to meet the 45-day deadline.
The Bottom Line: Who Should Choose What?
- Choose DST: Tired landlords who want passive income and estate preservation.
- Avoid DST: Investors needing liquidity. DSTs are illiquid for 5-7 years.
Frequently Asked Questions
What is a Delaware Statutory Trust (DST)?
A legal entity allowing fractional ownership of institutional real estate. It qualifies for 1031 exchanges as direct property ownership.
Why choose a DST over buying another rental?
Management freedom. You become a passive beneficiary, collecting income without dealing with tenants or repairs.
What happens when I pass away?
Your heirs inherit the DST shares with a Step-Up in Basis, eliminating the deferred capital gains tax liability.
Disclaimer: This content is for informational purposes only. DSTs are illiquid. Consult a tax attorney.
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