From Active Landlord to Passive Landlord, the 1031 Strategy Every Homeowner Should Know
Nichole Story
Can You 1031 Into a DST? Here’s What Every Investor Should Know
If you own an investment property and are thinking about selling, you’ve probably heard about doing a 1031 exchange — a powerful tool that lets you defer capital gains taxes by reinvesting in another “like-kind” property. But did you know that you can also 1031 into a Delaware Statutory Trust (DST)?
Many investors don’t realize this option exists, and it can be a game-changer — especially if you’re ready to enjoy more passive income and less hands-on management.
What Is a DST?
A Delaware Statutory Trust (DST) is a legal entity that allows multiple investors to co-own institutional-grade real estate — think multifamily buildings, medical offices, or industrial assets that would normally be out of reach for a single investor.
When you buy into a DST, you’re purchasing a fractional interest in the trust, which in turn owns the real estate. The trust collects rent, manages operations, and distributes income to investors — meaning you can sit back and let your money work for you.
How Does a 1031 Exchange into a DST Work?
Just like a traditional 1031, you’ll need to follow the IRS rules for timing and identification:
Sell your investment property and identify replacement properties (or DSTs) within 45 days.
Close on the DST investment within 180 days of your sale.
Use a Qualified Intermediary (QI) to handle the funds — you never take direct possession of the proceeds.
Your exchange funds are then used to purchase shares of the DST, which qualifies as “like-kind” property under IRS Revenue Ruling 2004-86.
Why Investors Are Turning to DSTs
For many investors, DSTs strike the perfect balance between real estate ownership and lifestyle freedom. Here are a few key benefits:
✅ No Management Headaches – The DST sponsor handles everything: tenants, maintenance, and accounting.
✅ Diversification – You can invest in multiple properties or asset types with smaller minimums.
✅ Stable Income – Many DSTs are structured around long-term, cash-flowing leases.
✅ Tax Deferral – You still get the full benefits of a 1031 exchange.
Who It’s Best For
DSTs are ideal for investors who are:
Retiring from active property management
Looking to simplify their portfolio
Interested in steady income without landlord responsibilities
Seeking to diversify beyond local markets
Things to Keep in Mind
DSTs are generally long-term, illiquid investments. You won’t have control over property decisions, and there are SEC regulations that limit how DSTs can operate. That’s why it’s important to work with a reputable DST sponsor and a 1031 exchange advisor who can walk you through offerings and structure.
Final Thoughts
A 1031 exchange into a DST can be a smart, tax-efficient way to transition from hands-on real estate ownership into passive income — without triggering capital gains taxes.
If you’d like to explore whether a DST might make sense for your portfolio, reach out. I can connect you with trusted DST specialists who can help you understand your options and current market offerings.