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1031 Exchanges Utilizing Delaware Statutory Trust (DST) Investment Offerings


Section 1031 of the Internal Revenue Code (commonly referred to as a 1031 Exchange) celebrated its 100-year anniversary this year. Section 1031 provides an effective strategy for individuals to defer capital gains tax that may arise from the sale of investment real property. By committing to the exchange of real property for like-kind real estate, real property owners may defer taxes and use the proceeds to purchase replacement property. Like-kind real estate includes business and investment real property, but not a property owner’s primary residence.



It is important to note, the IRS imposes specific guidelines that must be followed to successfully execute a like-kind 1031 exchange transaction within a closely monitored timeline of 180 days:



  • The cash invested in the replacement property must be equal to or greater than the cash received from the sale of the relinquished property.

  • The replacement property must be identified within 45 days from the close of escrow for the property being exchanged.

  • The sum of the cash invested, and the debt placed on the replacement property, must be equal to or greater than the sum of the cash invested, and the debt placed on the replacement property.

  • Additional cash can make up for a shortfall in debt placed on a replacement property, but additional debt cannot make up for a shortfall in cash invested in a replacement property.

  • The close of escrow on the replacement property must be completed within the 180-day timeline imposed by the IRS.



The pandemic has driven valuations of real estate for certain asset classes to record highs, creating an opportunistic time to sell as demand for certain property types far exceeds supply.



The challenge in such a frothy market with executing a “like-kind” 1031 exchange – identifying the replacement property and tying up the replacement property within 45 days, while at the same time, not overpaying for the replacement property in a bidding war against other buyers.



A Delaware Statutory Trust (DST) provides individuals the option of fractional ownership in a single property, or a portfolio of properties, with other like-minded real estate investors. DST investments qualify as replacement property for all, or just a portion, of an investor’s 1031 exchange transaction.



  • No management responsibilities – the DST is the single owner, asset manager and agile decision maker on behalf of investors.

  • Access to institutional real estate assets – a DST provides investors with fractional ownership of multi-million-dollar properties that otherwise would be out-of-reach on an individual basis.

  • Limited liability to DST investors – loans are nonrecourse to the investor. The DST is the sole borrower.

  • Low minimum investment – DST sponsors accommodate single investments as low as $25,000.

  • Diversification – investors can allocate among multiple DSTs, which may provide for a more diversified real estate portfolio across geography, property types and asset managers.

  • Estate planning – “swap until you drop” as the DST structure allows investors to continually 1031 exchange DST investments until the investor’s death, provides a step-up in basis for the beneficiaries and provides your heirs with professional real estate management versus the burden of hands-on management.

  • Insurance policy on your 180-day exchange – if for some reason an investor cannot acquire the original property identified in the 45 days, a secondary DST option allows them to meet the exchange deadlines and defer the capital gains tax.

  • Estate planning tool –“swap until you drop” as the DST structure allows investors to continually 1031 exchange DST investments until the investor’s death and provides a step-up in basis for the beneficiaries.



To learn more, please join us at our LIDO LIVE Webinar on Thursday, July 15th, 2021 11:00 AM PDT. Greg Kushner (Lido Consulting) will moderate while speakers Sean Parvin (NexPoint), Charles Jenkins (Inland Investments), and Tom Straw (Blueprint Equity) have an introductory discussion on 1031/DST.


Member FINRA/SIPC


Securities offered through Emerson Equity LLC.


This article was originally published as part of Lido Consulting’s Spring 2021 newsletter.





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