Delaware Statutory Trust (DST): The “Passive” 1031 Exchange
Tax Tips / Real Estate Alts
Delaware Statutory Trust (DST): The “Passive” 1031 Exchange
💡 Executive Summary
- Problem: A standard 1031 Exchange swaps one headache (your building) for another headache (a new building to manage).
- Solution: A DST allows you to buy a fractional “beneficial interest” in institutional-grade property (e.g., Amazon Warehouse).
- Result: You keep the 1031 tax deferral, receive monthly income, and have zero management duties.
⚠️ ILLIQUIDITY RISK
DSTs are a “marriage” for 5-10 years. You cannot sell your share until the Master Sponsor decides to sell the entire property. This is a strategy for long-term cash flow, not quick liquidity.
DSTs are a “marriage” for 5-10 years. You cannot sell your share until the Master Sponsor decides to sell the entire property. This is a strategy for long-term cash flow, not quick liquidity.
For many HNW investors (Tier L2+), the goal is not just “wealth accumulation” but “time reclamation.” The DST trades the role of ‘Landlord’ (Tenants, Toilets, Trash) for the role of ‘Investor’ (Checks, Charts, Chill).
🧐 Core Mechanic: “Boot” Coverage
DSTs close instantly. If your 1031 purchase falls $200k short of your requirement, you can plug the gap with a DST in 24 hours to avoid paying tax on the leftover cash (“Boot”).
DSTs close instantly. If your 1031 purchase falls $200k short of your requirement, you can plug the gap with a DST in 24 hours to avoid paying tax on the leftover cash (“Boot”).
Performance Simulation
Lifestyle Impact (1031 Scenario)
Traditional 1031 (Active)
High Effort / Tax Deferred
50% Stress
DST 1031 (Passive)
Zero Effort / Tax Deferred
Sole Ownership vs. DST
| Factor | Sole Ownership | DST Structure |
|---|---|---|
| Asset Class | Local Apartments / Retail | Institutional (Class A) |
| Minimum Inv. | $500k – $1M+ (Down Pmt) | $100k (Fractional) |
| Control | 100% Control | 0% Control (Sponsor) |
“The DST is the perfect off-ramp for the weary landlord. It allows you to stay in the real estate game for the tax breaks, but retire from the job of property management.”
🔗 Related BMT Playbooks (Internal)
🛡️ Prerequisite: The Core 1031 Exchange Rules 📉 Requirement: Accredited Investor Definition ✅ Next Level: 721 UPREIT Exchange (Post-DST)🏛️ Institutional Resources (External)
⚖️ Key Ruling: Rev. Rul. 2004-86 (DST Tax Treatment) 🏛️ SEC Official: Accredited Investor Standards 📜 Legal Text: IRC § 1031 Reference
BMT designs for tax reality, not theory.