Delaware Statutory Trust (DST) – A 1031 Exchange Investment Built for Passive Income

A Delaware Statutory Trust (DST) allows investors to own a fractional interest in high-quality, professionally managed real estate—and still qualify for full 1031 exchange tax deferral.

Whether you’re up against a tight 45-day identification deadline, tired of active property management, or looking to diversify into larger commercial assets without taking on the full financial burden, DSTs have become a go-to solution for investors across New York and beyond.

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What Is a Delaware Statutory Trust (DST)?

A DST is a legal entity created under Delaware law that holds title to real property. Through IRS Revenue Ruling 2004-86, the IRS confirmed that ownership in a DST qualifies as direct real estate ownership for 1031 exchange purposes. That means you can swap your current property for a fractional interest in a larger DST portfolio—without triggering capital gains tax.



Each DST investment is typically managed by a sponsor and includes one or more institutional-grade assets (think medical office buildings in Midtown Manhattan, multifamily housing near SUNY campuses, or net lease properties anchored by national tenants).

How DSTs Are Structured

DSTs are designed to be completely passive for investors:


  • A sponsor acquires and manages the property or portfolio
  • Investors purchase fractional interests in the trust (with limits of up to 1,999 investors)
  • There are no active management responsibilities—the sponsor handles everything
  • The trust must operate under strict IRS limitations to maintain its DST status



These IRS-mandated restrictions—known informally as the “7 deadly sins”—prohibit actions like raising new capital, renegotiating loans, or materially changing the business plan midstream. While they limit flexibility, they also keep DSTs structured in a way that preserves their 1031 eligibility.

Why DSTs Work So Well for 1031 Exchanges

Many investors turn to DSTs when the typical 1031 replacement property route becomes too rushed or too hands-on. Here’s why DSTs have gained so much traction:


  • Close Quickly: DST programs are pre-structured and ready to close in days, making them a strong option for investors facing tight 45-day identification or 180-day closing deadlines.
  • Completely Passive: If you’re retiring or just done being a landlord, DSTs eliminate the burdens of tenant calls, maintenance, or vacancy headaches.
  • Diversify Your Holdings: You can allocate exchange proceeds across multiple DSTs, diversifying by asset type (industrial, multifamily, medical) and geography (New York metro, Texas, the Southeast).
  • Institutional Real Estate Access: DSTs often own Class A assets that would be inaccessible to individual investors alone.
  • Pre-Arranged Financing: Many DSTs come with debt already in place, helping satisfy the “equal or greater debt” requirement in a 1031 exchange—without having to personally qualify for a loan.

You Don’t Have to Do a 1031 Exchange to Invest in a DST

DSTs aren’t just for 1031 exchangers. Investors can use cash to buy into a DST, whether for the passive income potential or to participate in institutional-quality real estate without the complexities of direct ownership.


Even without the tax deferral, DSTs can be attractive to accredited investors looking for income-producing assets held through a professionally managed structure.

What to Consider Before Investing in a DST

Like any investment, DSTs come with tradeoffs:


  • Illiquidity: Most DSTs have hold periods of 5–10 years. There’s no active secondary market, so you can’t sell your interest on demand.
  • No Control: You won’t vote on leases, financing, or sales. The sponsor (or trustee) makes all key decisions.
  • IRS Restrictions (The “7 Deadly Sins”): DSTs can’t raise new capital, renegotiate loans, or make material changes during the hold period—this structure supports tax compliance but limits adaptability.
  • Accredited Investor Status Required: To invest in a DST, you typically need to meet income or net worth thresholds defined by the SEC.


For a deeper dive into these considerations, see our DST Benefits & Risks guide.

Who Might Consider a DST?

If you’re:


  • Facing a looming 1031 exchange deadline
  • Looking to exit active property management
  • Interested in real estate income without direct ownership responsibilities
  • Aiming to diversify your investment real estate
  • An accredited investor focused on capital preservation


...then exploring DSTs could be a strategic next step.

Let’s Find the Right DST for You

At 1031 Financial, we specialize in connecting investors with DST programs that match their goals, timelines, and risk tolerance. Through our affiliate, 1031 Securities, Inc., we offer access to a variety of institutional-grade DST properties across the country.