Delaware Statutory Trust (DST) vs 1031 Exchange

Delaware Statutory Trust

Let’s look at the differences between a Delaware Statutory Trust and a 1031 exchange. Investing in real estate is a great way to diversify one’s portfolio and create passive income streams. However, navigating the complex world of real estate investing can be daunting, especially when it comes to tax laws and regulations. Two popular strategies used by real estate investors to save on taxes are Delaware Statutory Trusts (DSTs) and 1031 exchanges. In this article, we will compare and contrast these two strategies to help investors decide which one is best suited for their needs.

What is a Delaware Statutory Trust (DST)?

A Delaware Statutory Trust (DST) is a legal entity that is created under the laws of Delaware. It is a type of trust that allows multiple investors to own a beneficial interest in a property, and the trustee manages the property on behalf of the investors. DSTs are typically used for large commercial properties such as shopping centers, office buildings, and apartment complexes. These types of investments are generally not available to individual investors due to their high cost of entry.

DSTs have gained popularity in recent years because they provide investors with a way to own a portion of a large commercial property without the hassle of managing it themselves. Investors can purchase a beneficial interest in a Delaware Statutory Trust using their self-directed IRA or 401(k) account, and the income generated by the property is distributed to them on a pro-rata basis.

What is a 1031 Exchange?

A 1031 exchange, also known as a like-kind exchange, is a tax-deferred exchange that allows investors to sell one property and purchase another without incurring capital gains tax. To qualify for a 1031 exchange, the properties involved in the transaction must be of like-kind, meaning they are similar in nature and use. For example, an investor can exchange a rental property for another rental property, but they cannot exchange a rental property for a commercial property.

In a 1031 exchange, the proceeds from the sale of the first property are held by a qualified intermediary, and the investor has 45 days to identify potential replacement properties. The investor then has 180 days to close on one or more of the identified properties. If the investor successfully completes the exchange, they can defer paying capital gains tax on the sale of the first property.

Comparison between DST and 1031 Exchange Ownership Structure

A key difference between a Delaware Statutory Trust and 1031 exchanges is the ownership structure. In a DST, investors own a beneficial interest in a property, and the trustee manages the property on their behalf. In a 1031 exchange, investors own the property outright and are responsible for managing it themselves or hiring a property management company.


DSTs offer investors the ability to diversify their real estate portfolio by investing in multiple properties. This is because investors can purchase beneficial interests in multiple DSTs using their self-directed IRA or 401(k) account. In contrast, a 1031 exchange is limited to one property at a time.

Ease of Management

DSTs are a passive investment, meaning investors do not have to actively manage the property themselves. The trustee manages the property and distributes income to investors on a pro-rata basis. This makes DSTs a great option for investors who do not have the time or desire to manage a property themselves. 1031 exchanges, on the other hand, require investors to actively manage the property themselves or hire a property management company.


DSTs are generally less liquid than owning a property outright. Investors cannot sell their beneficial interest in a DST without the approval of the trustee, and there may not be a market for their investment. In contrast, owning a property outright provides investors with more flexibility to sell their property when they choose.

Tax Benefits

Both a Delaware Statutory Trust and 1031 exchanges provide significant tax benefits to real estate investors. In a DST, investors receive income on a tax-deferred basis, meaning they do not have to pay taxes on the income generated by the property until they receive distributions from the trust. This can be beneficial for investors who are looking to maximize their current income and defer paying taxes to a later date.

Furthermore, DST investors may also be able to take advantage of depreciation deductions on the property, which can further reduce their tax liability. Depreciation is a tax deduction that allows investors to write off the cost of the property over a period of time. This deduction can be significant and can help investors offset the income generated by the property.

Similarly, 1031 exchanges allow investors to defer paying capital gains taxes on the sale of a property if they use the proceeds to purchase another like-kind property. This can be a significant tax savings for investors, as they can avoid paying taxes on the gain from the sale of the property and reinvest that money into a new property.

It’s important to note that while both DSTs and 1031 exchanges offer significant tax benefits, investors should consult with their tax advisor or attorney to ensure they are maximizing their tax savings and complying with all relevant tax laws and regulations. Additionally, investors should be aware of the potential risks associated with these investment strategies and conduct thorough due diligence before investing.

If you are interested in learning more about 1031 exchange and DST or if you have a property you are looking to exchange and you want to know what your options are, feel free to reach out to us at ICRE Investment Team anytime. We’d be happy to help supply you with information on any relevant properties or markets, alongside any connections in lending, investing, or consulting that you might need!