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A Delaware statutory trust (DST) is a legal entity that holds real estate for multiple investors, and a properly structured DST interest may qualify as replacement property in a 1031 exchange. DST 1031 Experts explains how DST 1031 exchanges work, outlines the risks, and helps accredited investors connect with a financial professional to discuss their options.
A DST lets several investors own beneficial interests in one or more properties managed by a sponsor.
The IRS addressed when a DST interest can be treated as a direct interest in real estate for 1031 purposes in Revenue Ruling 2004-86.
A deferred 1031 exchange has two federal deadlines: 45 days to identify replacement property and 180 days (or your tax return due date, if earlier) to complete it.
DST offerings are generally private placements sold only to accredited investors.
DSTs are illiquid, offer investors little control, and can lose value. Distributions are not guaranteed.
A 721 UPREIT is a different path with its own tax rules and trade-offs.
A Delaware statutory trust is a trust formed under Delaware law that can own real property. A sponsor typically buys the property, sets up the trust, and offers beneficial interests to investors. The trust, through the sponsor or a master tenant, handles leasing, financing, and day-to-day management.
For tax purposes, Revenue Ruling 2004-86 concluded that, under the facts it described, investors in a DST could be treated as owning a direct interest in the real estate, which is what a 1031 exchange requires. That treatment depends on the trust following strict limits. For example, the trustee generally cannot take on new financing, renegotiate existing loans except in limited cases, accept new capital contributions, or reinvest sale proceeds.
Learn more in our Delaware statutory trust guide or the article What is a Delaware statutory trust?
A related resource covers a plain summary of exchange rules.
Section 1031 of the Internal Revenue Code allows a taxpayer to defer recognition of gain when real property held for investment or business use is exchanged for like-kind real property. The rules for deferred exchanges are in Treasury Regulation 1.1031(k)-1. A typical DST 1031 exchange follows these steps:
Before closing, engage a Qualified Intermediary so the sale proceeds go to them, not to you.
Name them in writing, usually up to three properties or more under the 200% rule, and DST interests can be among them.
Read each private placement memorandum, compare sponsors, debt, fees and the exit plan, and confirm the investment fits your goals.
The QI sends your funds to the DST sponsor, and you receive beneficial interests in the trust and file Form 8824 with your tax return.
A short explainer from the 721 UPREIT Pros channel on how a 1031 exchange differs from a 721 UPREIT contribution. Educational only, not tax or investment advice.
Most DST offerings are sold under Regulation D and are available only to accredited investors. For individuals, that generally means a net worth over $1 million, not counting a primary residence, or income over $200,000 ($300,000 with a spouse or spousal equivalent) in each of the last two years with the expectation of the same this year. Sponsors set their own minimum investments. See Delaware statutory trust minimum investment.
Explore DST and 721 UPREIT sponsors. Review each offering's fees, risks, liquidity restrictions and governing documents with your advisers.
Logos shown for illustration of sponsors in the DST market; no endorsement implied.
A 721 UPREIT involves contributing property to an operating partnership of a real estate investment trust in exchange for operating partnership units under Section 721. Some DST sponsors give the operating partnership an option to acquire the DST property later in exchange for units. The two paths differ in important ways.
| Feature | DST | 721 UPREIT |
|---|---|---|
| What you own | Beneficial interest in a trust that holds specific property | Units in a REIT's operating partnership, usually tied to a larger portfolio |
| Tax rule used | Section 1031, with Rev. Rul. 2004-86 guidance | Section 721 contribution to a partnership |
| Future 1031 exchanges | Possible when the DST property is sold, subject to the rules | Generally no longer available for that investment once you hold units |
| Control | Very limited; sponsor and trustee decide | Very limited; REIT management decides |
| Liquidity | Generally illiquid until the property is sold | Units may be redeemable under program terms; redemptions are usually taxable and may be limited |
| Diversification | Often one property or a small group | Often a broader portfolio |
| Eligibility | Generally accredited investors only | Generally accredited investors only for private programs |
A DST to 721 conversion is not guaranteed, and it can change your future tax options. Compare the details in DST vs 721 UPREIT after a property sale, the 721 UPREIT guide, and the 721 UPREIT risks overview.
Before investing, review the private placement memorandum with your own advisers.
See our full article on the risks of a Delaware statutory trust.
It is a trust that owns real estate and sells beneficial interests to investors. A properly structured DST interest may be treated as a direct interest in real estate under Revenue Ruling 2004-86, so it may qualify as like-kind replacement property.
Under Treasury Regulation 1.1031(k)-1, you must identify replacement property within 45 days of selling your property and complete the purchase by the earlier of 180 days or your tax return due date, including extensions.
Most DST offerings are limited to accredited investors, as defined by the SEC. Sponsors also set minimum investment amounts.
Usually not easily. DST interests are generally illiquid, and there is no guarantee you can sell before the sponsor sells the property.
No. Distributions depend on how the property performs and can be reduced or suspended. You can also lose principal.
A DST interest is real estate for 1031 purposes. A 721 UPREIT gives you operating partnership units in exchange for property, which generally ends your ability to do future 1031 exchanges with that investment.
No. This site is educational. Talk with your own CPA, attorney, and qualified intermediary about your situation.
Have questions about a DST 1031 exchange? Request a call to talk with a financial professional about your timeline, your property, and the questions to ask before you invest. A call does not create an advisory relationship.
Call 888-606-1031 or use the form below. You can also visit our contact page.
Free download: DST Due Diligence Checklist, 40 questions to ask before you invest
Get the free checklist (PDF)Call 888-606-1031 or request a call to talk through your timeline.
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