Sunday, April 14, 2024

Importance of DSTs in Seeking Tax Deferral and Other Benefits of 1031 Exchanges

Delaware Statutory Trusts (DSTs) are for the benefit of the investors. DSTs manages the property according to the investor’s legal needs, protect their rights in that property, and provide income to them over time. Simultaneously, the DST offers the most incredible flexibility for real estate investments and tax benefits through tax deferral within US Internal Revenue Code Section 1031 rules.

A delaware statutory trust 1031 allows you to sell a property without paying any capital gain taxes. A 1031 exchange is a real estate exchange where one property exchanges with a similar property during a sale transaction. DSTs are for different purposes, but no matter the goal, a DST will help you optimize the benefits of a 1031 exchange or a trade of a business interest. Here are the advantages of DSTs in providing 1031 solutions.

1.   You Can Sell and Buy Without Triggering A Taxable Event

The 1031 exchange is the best strategy for deferring taxes on capital gains. However, if you do not incorporate your 1031 exchange into a Delaware Statutory Trust, you will be leaving money on the table. You sell something for a profit; then you have to pay the government a portion of it, right? Not if you use a DST.

A DST offers a means for investors to buy and sell real estate without triggering a taxable event. Unlike a partnership, DSTs are ‘pass-through’ entities that do not incur taxes at the entity level. Instead, any income or gains are taxed only upon distribution to unit-holders.

The flow-through characteristic makes the DST useful in an exchange since it immediately distributes sales proceeds to the unit-holder. Every dollar allocated can be reinvested into another property under Section 1031 without incurring a tax liability, unlike ordinary partnerships or LLCs taxed as sole proprietorships or corporations.

2.   Allows Small Investors Chance to Own Fractional Shares of Commercial Properties

The Delaware Statutory Trusts are a unique entity that came about because of the growing popularity of Section 1031 of the Internal Revenue Code. One of the unique features DSTs present is allowing smaller investors to take advantage of the benefits otherwise only available to more prominent investors.

Delaware Statutory Trusts (DSTs) offer smaller investors the opportunity to participate in 1031 exchanges like large institutional investors. A key advantage to real estate investing through 1031 like-kind exchanges using Delaware Statutory Trusts, DSTs, is the ability to own fractional shares of property, which is affordable for small investors.

3.   DSTs Provide Professional Management on Behalf of Investors

A Delaware Statutory Trust (DST) is a legal instrument created to manage a property on behalf of investors. A DST holds title to the property, while an investor has an interest in that property. DSTs will professionally manage the property on your behalf through professionals put in place by the project sponsor.

4.   DSTs Shields Investors from Liabilities Beyond Their Share

DSTs shields investors from liabilities by limiting the liability of the investors to the value of assets of their trusts. The limited liability gives investors peace of mind and eliminates some uncertainties. Delaware Statutory Trusts create separate, non-personal entities that mitigate risks, secure the assets and protect investors.

Those who hold title in their name are personally liable for all debts and actions of the entity. However, investing with DSTs, your liability is limited to the amount of your investment. Hence, if your tenant trashes your building or there’s a gas explosion, you can lose your shirt.

5.   Quick Closure

One benefit of Delaware Statutory Trusts (DSTs) is that they provide a quick and clean way to sell your asset and close your transaction fast. DSTs pre-package the whole process since due diligence is already in place. DSTs offer a simple transfer that is not time-consuming, bearing in mind that the transaction does not trigger a taxable event.


The primary advantages of DSTs over other 1031 Solutions are the speed of completing the transaction, deferral of taxes. Delaware Statutory Trusts (DST) are another way to implement a 1031 exchange and can be a very effective way to save capital gains taxes and receive other benefits under the IRS Section 1031 ‘like kind’ exchange rules. Delaware Statutory Trusts (DSTs) are intelligent estate planning tools. DSTs, along with a 1031 exchanges solution, present the only viable option for US property investors interested in selling US real estate property tax-free for a significant profit.

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