If you are an investment real estate owner who would prefer not to pay tax on sale, you need to know about 1031 + DST. The process is simple-sell in a 1031 exchange and purchase DST replacement property. A DST (Delaware Statutory Trust) replacement property is a fractional interest in a large rental property such as an office building, shopping center, apartment complex, industrial property, senior housing, student housing or hotel-even golf courses have been offered. DSTs are much like professionally managed whole ownership rental properties. Most whole ownership properties are too small for professional management but DST properties justify professional management because the value of the property typically exceeds $20 million.
In addition to 1031 exchange tax deferral, DSTs have all of the benefits of rental real estate ownership including cash flow from rents, depreciation deductions and potential profit on resale. Along with the benefits, DSTs are subject to the standard risks of rental real estate ownership, but the risks are mitigated by professional acquisition analysis and evaluation (due diligence) at the sponsor, lender, broker-dealer and securities registered representative levels and ongoing professional management.
By Jefferson F. Riddell