What is a DST (Delaware Statutory Trust)?

A Delaware Statutory Trust (DST) is a type of trust that allows you to own a fractional interest in large, professionally managed institutional real estate. It enables you to sell your property, use a 1031 exchange to defer capital gains taxes, and reinvest the proceeds into one or more diversified properties—such as multifamily, self-storage, or student housing. Investors typically receive a share of the potential monthly income, which may be partially sheltered from taxes through depreciation.

What is a 1031 exchange?

A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows investors to defer paying capital gains taxes when they sell an investment property and reinvest the proceeds into a like-kind property of equal or greater value. To qualify, both the relinquished and replacement properties must be held for investment or business purposes—not personal use—and the exchange must follow strict IRS timelines: the new property must be identified within 45 days and acquired within 180 days of the original sale.

Delaware Statutory Trusts (DSTs) are considered like-kind under IRS Revenue Ruling 2004-86 because they represent fractional ownership in institutional real estate that is held for investment purposes. Though DSTs are passive and securitized, the IRS classifies them as real property interests, making them eligible for 1031 exchanges. 

What does debt replacement mean in a 1031 exchange?

In a 1031 exchange, to fully defer taxes, you must reinvest all of your proceeds and replace any debt that was paid off. DSTs simplify this process because they come with built-in, non-recourse debt, eliminating the need to take out a loan or assume personal liability. It’s an effective way to meet IRS requirements while limiting your personal exposure.

I’ve got debt on my property. How do I know if my debt situation will allow me to invest in a DST?

You’ll be eligible as long as the DST’s loan-to-value (LTV) is equal to or higher than the LTV on your property. That ensures you meet the debt replacement rules for your 1031 exchange.

Where does my DST income show up when I file my taxes?

When you invest in a DST, you’ll typically receive a 1099-MISC each year showing the rental income distributed to you. Even though you’re receiving a 1099 (usually by January 31st of that tax year), that income is reported on Schedule E of your tax return—just like income from a rental property.

Why does adding debt increase depreciation and reduce taxable income?

When a DST uses leverage (i.e., non-recourse debt), the depreciation deduction is based on the total value of the property—not just the amount you invested. So, even if you invest $1 million and the DST acquires a $2 million property using 50% debt, you receive your share of depreciation based on the full $2 million—not just your $1 million investment.

How are my heirs taxed when I die? What if my property is held in a trust?

Your heirs receive a step-up in basis when you pass away—so long as the assets are still legally tied to you. In a revocable trust, that’s always the case since you retain full ownership. With an irrevocable trust, it depends on how the trust is written. If the assets are still considered part of your estate when you die, your heirs may still receive the step-up in basis.

What is an FLP (Family Limited Partnership)

A Family Limited Partnership lets you transfer wealth to your kids at a discount, reduce estate taxes, and still keep control of the farm or ranch—it’s like handing them the keys, but you’re still the one steering the truck, and shrinking your estate tax bill at the same time.

What is LLC recapitalization as an estate planning tool?

An LLC recapitalization—specifically into voting and non-voting shares—is an estate planning strategy that involves restructuring ownership within an LLC to separate control from economic interest. For example, in a 9-to-1 recapitalization, every 10 shares of LLC ownership are restructured so that one share carries voting rights and the remaining nine are non-voting. The voting shareholder retains full control, while the non-voting shareholders receive economic benefits without decision-making power. Because the non-voting shares lack control and marketability, their value can be discounted—often by as much as 35%—for estate tax purposes. This can significantly reduce the taxable value of an estate, making it a powerful tool for families seeking to minimize estate taxes while maintaining control over legacy assets like farms or ranches.

Concentration vs. Diversification: What’s the difference and why does it matter?

The best way to create wealth is concentration. The best way to maintain wealth is diversification. And one of the biggest enemies to wealth is taxes.

What are my options for identifying replacement properties in a 1031 exchange?

The three 1031 exchange property identification options are: 

1. Three Property Rule – You can identify up to three replacement properties of any value.

2. 200% Rule – You can identify as many properties as you want, as long as the total value does not exceed 200% of the value of the relinquished property.

3. 95% Rule – Rarely used; allows identifying properties exceeding the 200% rule limit, but you must acquire at least 95% of the value of the identified properties.

What is the 200% Rule?

The "200% Rule" in a 1031 exchange allows the exchanger to identify an unlimited number of replacement properties, as long as the total fair market value of all identified properties does not exceed 200% of the value of the relinquished property.

Example:
If a client sells a property for $1 million, they can identify up to $2 million worth of potential replacement properties. This might include, for instance, two ranches—one priced at $750,000 and another at $500,000—and five DSTs at $125,000 each. Combined, these identified properties total $1.875 million, which stays within the 200% limit.

This setup allows for flexibility and a defensive strategy. If the ranch purchase falls through, the client still has enough DSTs identified to reinvest the full $1 million and preserve the tax deferral. It prevents the scenario where a failed deal leads to unexpected taxes due to insufficient replacement property identification.

Do rent payments increase over time in a DST?

Over the past 20 years, rents have outpaced expenses roughly 80% of the time. That trend is a big part of why DSTs have performed so well for investors. Even as costs like insurance and property taxes rise, rental income typically grows faster, which means the net income keeps increasing. More money coming in than going out—that’s what drives steady monthly distributions and stronger long-term returns. It’s one of the key reasons we continue to favor these investments.

How many Farmers and Ranchers are transitioning out of their properties?

• Between 2017 and 2022, the US lost 11% of its farmers and ranchers.

• The average farmer or rancher is now 59 years old.

• Nearly 70% of ag professionals are over the age of 55.

• 50% of Texas farmers and ranchers do not have an estate plan.

• 71% have not named a successor.

What is the Debt Service Coverage Ratio (DSCR) and why is it important?

DSCR (Debt Service Coverage Ratio) measures how much income a property generates compared to its debt payments. A DSCR above 1.0 means the property earns more income than it owes in debt service.

How is a DST legally structured?

Every DST is a trust, and every trust has a trustee—and every trustee is held to a fiduciary standard. The trustee of a DST is typically a law firm based in Delaware. They are bonded and insured, which means we would have recourse against them if they ever breached their fiduciary duty. It’s a safeguard that helps protect investors from bad actors—like the Bernie Madoffs of the world.

What does it mean when a DST asset is “stabilized”?

When you buy into a fractional interest in a DST, you're investing in a stabilized asset—meaning it's at least 90% leased. It's already built, already occupied, and already generating cash flow. We're not taking on construction risk or lease-up risk. That’s why a DST is considered conservative and begins cash flowing from Day One.

Do DST investments appreciate over time? How much?

If a DST sells in five years, the average capital appreciation has historically been about 30% to 40%. So, if you put in a million dollars, you might get $1.3 to $1.4 million back—on top of all your monthly cash-on-cash income. That 30%–40% appreciation, when spread over the holding period, makes up the other half of your yield. That’s how we’ve averaged around 12% annually across more than 100 DSTs over the past 20 years.

Now, if you sell your DST units early—say, two years in—the new buyer might only need to hold it for three more years to realize that appreciation. They’d get 100% of the upside in a shorter window, which can boost their return.

And yes, when a DST goes full cycle—like when an apartment building is sold—you have the option to complete another 1031 exchange. About 95% of our clients do.

The reason they exchanged in the first place was to defer taxes, and that reason usually still applies. In fact, the longer you go, the more appreciation and depreciation build up, and the larger the tax liability becomes. So, most folks just want to keep kicking that tax can down the road.

What happens to the DST when I pass away? Can my kids sell it readily?

The main time people don’t do another exchange is when the original investor—say, Mom or Dad—passes away. When that happens, the heirs inherit the DST units and, just like with any other real estate, they receive a stepped-up basis. So if they choose to cash out at that point, we’ll do our best to help find a buyer. The good news is, when they do cash out, it’s tax-free to them because of that step-up in basis.

When I sell the property, how does that money end up in the DST?

When you sell your property in a 1031 exchange, the proceeds must go to a Qualified Intermediary (QI)—not to you. That’s the first and most important rule. The QI is a neutral third party who holds the funds during the exchange process to keep it compliant with IRS rules.

Once you close on your sale, the QI holds the money and waits for your instructions. You’ll have 45 days from the sale date to formally identify which DSTs—or other properties—you want to exchange into. Then, once you're ready to close, the QI wires the funds directly into the DST sponsor for the DSTs you’ve selected.

From your perspective, it’s a simple process: the DST has already closed on the property, the loan (if any) is already in place, and due diligence is complete. All you’re doing is subscribing to an interest in that trust, and the QI handles the transfer of funds. So you never touch the money directly, which is exactly what keeps the exchange tax-deferred. Our team coordinates closely with the QI and DST sponsor to make sure everything happens smoothly and on time.

Is there debt on DSTs? What is non-recourse debt?

Any debt used in a DST is non-recourse to the investor. That means you benefit from the leverage, but you're not personally liable for the debt—or the property. There are no personal guarantees, no capital calls, and your name isn’t even on the loan documents. The lender’s only collateral is the real estate itself.

This also gives you an added layer of confidence. If a lender like Fannie Mae or Freddie Mac is willing to loan on the DST property, it means the asset has already passed some serious scrutiny. They look at how much income the property generates compared to its debt obligations—that’s called the debt service coverage ratio—as well as other financial benchmarks. If a lender provides financing at around 50% loan-to-value, which is typical, and the coverage ratio is 2.0 or higher, that tells you the property is in a strong financial position.

What is the “Safe Harbor Rule”?

Let’s talk quickly about the Safe Harbor Rule, which often comes up when someone wants to do a cash-out refinance before selling. The IRS has rules—like the “step transaction doctrine”—to prevent tax avoidance. If you refinance and sell too close together, they might see it as one transaction and challenge your 1031 exchange.

To avoid that, the Safe Harbor Rule says to wait two tax years between refinancing and selling. That doesn’t mean two full years—if you refinance late in one year and sell early the next, you might qualify in just over a year. If you're thinking about pulling cash out before listing and rolling into a DST, timing matters. Talk to your tax advisor early to avoid issues.

What is a TAX CLIFF with regards to farming and ranching?

When someone exits active farming or ranching, they lose access to their typical annual deductions—things like input costs, equipment expenses, and operational write-offs. That’s when they hit what we call a “tax cliff.”

It’s a sudden exposure to high taxable income because there’s no longer any shelter from ongoing business expenses. The real estate portion can often be managed through a 1031 exchange, allowing deferral of capital gains. But everything else—equipment, livestock, grain in the bin—becomes fully taxable, often at ordinary income rates rather than capital gains. That means you're looking at 30% to 50% in taxes on the value of those assets.

For example, if someone has a fully depreciated $500,000 combine and sells it outright, they could face $150,000 to $250,000 or more in taxes on that one item alone.

What is a Charitable Remainder Trust, and how does it help farmers and ranchers?

A Charitable Remainder Trust (CRT) is a tax-efficient strategy that allows farmers and ranchers to sell highly appreciated assets—such as land, equipment, or livestock—without paying immediate capital gains taxes. By transferring the asset into the trust before the sale, the CRT (as a tax-exempt entity) sells it tax-free and provides the owner with a stream of income for life or a set number of years. At the end of the term, the remaining assets go to a charity of the owner's choice. This approach helps reduce taxable income, avoid capital gains, generate steady retirement income, and create a charitable legacy—all while easing the financial burden of exiting active operations.

Does the DST sponsor give me reporting on how the property is performing?

Each DST operates on a set budget, and sponsors provide quarterly performance reports showing how the properties are performing relative to projections. The other half of the return typically comes from capital appreciation when the property is sold. It’s a structure people appreciate—predictable cash flow with the potential for long-term upside.

How liquid are DSTs if I decide to sell?

DSTs are not considered liquid investments, since there’s no public market to sell your shares on. However, they are assignable, meaning they can be sold just like any other piece of real estate. That said, the resale process is not instant and there are no guarantees.

In practice, about 70% of the time our firm is able to find a buyer within 30 to 60 days, often close to face value. That’s because we have consistent inbound demand—clients doing new 1031 exchanges and looking for DSTs. If you do want or need to sell, you’d start by contacting us, and we’d work our internal network first. We can’t guarantee a buyer or a price, but more often than not, it works out.

DSTs don’t get appraised or revalued every year. They’re valued at market only when the underlying real estate is sold or when you resell your interest. So while liquidity is possible, it’s not guaranteed, and it’s not immediate like a stock. Think of it as real estate with a pathway to exit, not a fully liquid investment.

What kind of fees do you charge?

Fees in a DST are fully built into the investment, and returns are always quoted net of fees—so you’re seeing your real numbers. Typically, total fees run between 4% and 6% of the property value, split between the real estate sponsor and the advisor team. So heres some of what those fees cover:

Ongoing property management costs, surprise repair bills, or capital calls. acquisition costs, due diligence, maintenance reserves, and day-to-day operations.

As an investor, you’re passive. The fees are what make that possible. Technically, you could do it yourself if you had a hundred million dollars—but most people don’t want the hassle, risk, or overhead of sourcing, financing, managing, and maintaining institutional properties on their own.

What does it mean when you say a DST has gone full cycle?

Ninety-five percent of clients reinvest into another DST after their current DST goes full cycle, continuing to defer taxes—because that was their goal from the start.

About 70% of DSTs that go full cycle reach their liquidation event around the five to seven year mark. The remaining 30% either liquidate earlier—typically within four years—or are held longer, sometimes up to ten years, depending on market conditions and the sponsor’s strategy.

How does the SEC work with the IRS to regulate DSTs?

We get audited by the SEC every 12 to 18 months, so we have a full-time team ensuring everything we do is by the book. You may not see it, but it’s happening behind the scenes to keep us compliant. For DSTs, the key rule is IRS Revenue Ruling 2004-86—that’s what allows them to qualify for the 1031 exchange program.

The SEC and IRS both oversee this space, so every offering must meet strict tax and securities regulations. Every DST we offer comes with a tax opinion from a major law firm. They review the entire deal and issue a letter stating, in effect, “Yes, this should qualify for a 1031 exchange.” That letter serves as our paper trail if any questions ever arise.

Ten years ago, most CPAs and attorneys hadn’t even heard of DSTs, so we’d spend an hour explaining the concept. These days, it’s usually just a five-minute check-in—but we’re always happy to walk people through it.

How does depreciation work in a DST?

One of the most overlooked—but powerful—benefits of DSTs is depreciation. About 90% to 95% of your investment in a DST goes into the buildings, not the land—and buildings are depreciable, whereas land is not. That’s important because when you exchange into a DST through a 1031, your basis carries over, but now you’re putting that basis into something you can actually start depreciating again.

Here’s what that looks like: if you’re in a multifamily apartment DST, for example, it’s on a 27.5-year straight-line depreciation schedule. That means you can write off roughly 3.63% of the building’s value each year—and that depreciation passes directly through to you. On average, for most clients, about 60% to 80% of the income they receive from DSTs is tax sheltered. So, if you’re earning a 5% cash-on-cash yield, your tax-equivalent yield could be closer to 7%. As we always say—it’s not what you make, it’s what you keep.

Are my taxes going to be a headache with these DSTs? What kind of packet do you send my accountant to make his life easier?

When it comes to taxes, we don’t just leave you—or your CPA—on your own. We make sure you have everything you need to fully take advantage of the tax benefits DSTs offer, especially when it comes to depreciation. Before tax time rolls around, here’s what we’ll provide:

• A profit and loss statement from the DST showing how the trust performed.

• A trust letter breaking down your exact share—similar to a custom 1099.

• Settlement statements from the sale of your relinquished property and from each DST you invested in.

• A non-recourse debt summary, so your CPA can show the IRS that you’ve met the debt replacement requirement for your 1031 exchange.

• A building-to-land value breakdown from the offering documents to ensure depreciation is calculated correctly.

• A copy of IRS guidelines and depreciation categories, like Section 1245 and 1250 property, if applicable.

• And a summary sheet that ties all your DST activity together—giving your CPA the full picture.
  

At the end of the day, we want to make sure that depreciation benefit doesn’t slip through the cracks—because it’s one of the most valuable and often overlooked ways DSTs can boost your bottom line.

How can DSTs help me pass down my legacy without creating conflict for my kids?

One benefit of DSTs that doesn’t get talked about enough is how they help with passing assets down to the next generation. The structure of a DST can make it much easier for families to stay together and avoid conflict.

Here’s what we mean: traditional real estate—especially land—is hard to divide. Say you leave a ranch to three kids. Now they all have to agree on what to do with it. One wants to sell, one wants to keep it, and the other doesn’t want to be involved. That’s how things get complicated—fast.

DSTs help avoid that. They’re easily divisible. If someone owns $300,000 in DSTs and has three kids, it can be split three ways—each child gets their own separate interest. No shared ownership, no group decisions. The income just goes to three different accounts. And nobody has to have an uncomfortable conversation about Mom and Dad’s wealth over Christmas dinner.

DSTs also receive a step-up in basis when inherited, just like other real estate—which wipes out capital gains. If the heirs sell their DST interest right away, there’s typically no tax due. Each heir can decide for themselves: keep collecting income, sell, or complete another 1031 exchange. DSTs don’t solve everything, but when it comes to simplifying inheritance and preserving family harmony, they’re one of the cleanest tools available.

Can you explain 1245 vs. 1250 in plain English? I’m not a CPA.

Let’s break down how depreciation works when a property sells. There are two types to know: Section 1250 and Section 1245.

Section 1250 applies to buildings and improvements. If you complete a 1031 exchange, you usually don’t have to pay taxes on that depreciation—it simply carries over. No surprise tax bill.

Section 1245 applies to things like equipment, vehicles, pivots, and grain bins. These assets are depreciated more quickly—typically over 3, 5, or 7 years—and that depreciation often gets recaptured and taxed when the DST sells, even with a 1031 exchange.

But here’s the good news: some farm and ranch items may qualify for exceptions that avoid the 1245 tax if they meet specific IRS rules. Many CPAs aren’t aware of this. That’s where we come in—we provide your CPA with the right IRS guidance to help ensure you don’t pay more tax than necessary.

Tell me more about fractional mineral royalties. Can I exchange my land into them?

Let’s talk real quick about fractional mineral royalties—something most folks don’t even realize you can 1031 into. These aren’t oil wells or drilling projects, so you’re not taking on risk or running operations. What you’re doing is owning a small share of the mineral rights under the ground—usually in places like the Permian Basin. When oil or gas is extracted, you receive a royalty check. Simple as that.

These portfolios are made up of deeded mineral rights and are structured in a way that qualifies for a 1031 exchange—typically through a single-member LLC. So while they aren’t DSTs, they function a lot like them: passive, income-producing, and hands-off. It’s a great way to diversify, generate monthly income, and remain completely passive. And for folks who already understand land and minerals, this often just makes sense.

How risky are DSTs?

DSTs carry the same kinds of risks you’d face if you owned the property yourself—things like vacancies, unpaid rent, market fluctuations, or changes in local laws. They’re designed to be more stable, but let’s be clear: it’s still real estate, and real estate always comes with some level of risk.

What happens if the DST needs more money down the road—for repairs or rising expenses?

What goes into the trust must stay in the trust. So once the DST closes on the property, it can’t raise additional capital or refinance. That’s why DSTs raise extra cash upfront, which goes into reserves for things like insurance premium increases or property tax hikes.

How quickly could I sell my DSTs if I need to sell? How liquid are they?

DSTs, like any real estate asset, are assignable—meaning you can sell them. However, as with other real estate, there’s no liquid daily market for DSTs. They don’t trade like stocks and aren’t appraised annually—only when the asset goes to market. If you’re looking to sell your DST early, the best place to start is with us.

Our firm handles a high volume of monthly closings with clients exchanging into DSTs, so we often know who’s buying. Can we guarantee we’ll find a buyer? No. Can we guarantee a sale at your original investment amount? Also no. But roughly 70% of the time, we’re able to find a buyer within 30 to 60 days—often close to face value. So while DSTs are considered illiquid, there is a viable path to exit if needed. We’ve had strong success navigating these situations.

What does it mean to be an accredited investor, and why do I need to be one to invest in DSTs?

DSTs are Reg D private placements and are only available to accredited investors:

• A net worth of at least $1 million (excluding primary residence), or

• Annual income of $200,000 individually or $300,000 jointly for the last two years.

DSTs are considered private placement investments, meaning they’re not traded on the stock market and don’t go through the same public registration process. Because of that, the SEC requires investors to be “accredited” to demonstrate sufficient financial stability to take on the associated risks.

Why wouldn’t I just sell the property, pay the taxes, and move on?

One common objection we hear is that people don’t want to pay the capital gains tax. But the bigger issue is that most people have no idea how large that tax bill can actually be. They often think it’s just 15%, but once their gains exceed about $580,000, the federal rate jumps to 20%. That’s not including potential depreciation recapture taxes. And if their income is over $250,000, they’re also hit with the 3.8% Net Investment Income Tax—what many refer to as the “Obamacare tax.”

Depending on where they live, they may also owe state income tax. So that “15%” they were expecting often turns out to be closer to 30%–40%.

We’ve seen it time and time again—someone goes through with the sale, then sees the tax bill and is furious. Usually at their CPA, broker, or whoever failed to warn them ahead of time. That’s why one of the smartest things you can do as an advisor is to encourage them to get a pre-sale tax projection from their CPA. Have them lay it all out—federal, state, and any depreciation recapture. It eliminates the surprise and positions you as the advisor who helped them avoid a major financial misstep. Because at the end of the day, you’re not just helping them sell the property—you’re helping protect their wealth.

What happens if I can’t find a replacement property in time for my 1031 exchange?

A lot of folks hold off on selling because they’re worried they won’t find a new property in time for their 1031 exchange—especially with inventory this tight. That’s a valid concern. But that’s where DSTs come in. If a ranch or building deal falls through, DSTs are pre-packaged and ready to go, allowing the exchange to close on time—as long as the 1031 proceeds are placed with the Qualified Intermediary before or at closing. That way, the seller doesn’t get stuck with a tax bill, even if their original replacement plan falls through.

How can I replace my debt using a DST?

In a 1031 exchange, to fully defer taxes, you must reinvest all your proceeds and replace any debt that was paid off. DSTs make that process simple because they come with built-in, non-recourse debt, so you don’t have to take out a loan or be personally liable. It’s an effective way to meet IRS requirements while limiting your personal liability.

Can I self-certify myself as an accredited investor?

Yes, you can self-certify as an accredited investor—if you’re investing through a Reg D offering that allows it, which most DSTs do. That typically means completing and signing an Accredited Investor Questionnaire (AIQ) where you attest that you meet the income or net worth requirements:

• Net worth of at least $1 million (excluding your primary residence), or

• Annual income of $200,000 individually—or $300,000 jointly with a spouse—for the last two years.

Some sponsors may require third-party verification (like from a CPA or financial advisor), but many accept self-certification through a signed AIQ. Always check the specific sponsor’s requirements before assuming.

What type of paperwork do I need to sign to invest in a DST?

1. Accredited Investor Questionnaire (AIQ)
• Confirms that the investor meets income or net worth requirements.
• Usually signed and dated by the client (self-certification).
• Important: The client must complete and sign a separate AIQ for each DST investment.

2. Subscription Agreement
• The legally binding contract between the investor and the DST.
• It outlines:
 – The amount being invested
 – Entity name (e.g., revocable trust, LLC, etc.)
 – Acknowledgments of risk, illiquidity, and other disclosures

3. Suitability or Investor Profile Form (sometimes required)
• Used by the sponsor or broker-dealer to determine if the investment aligns with the investor’s objectives, liquidity needs, and risk tolerance.
• Some sponsors waive this if you’re submitting through a platform that handles suitability (like Altigo).

4. W-9 Form
• A tax form used so the DST can issue 1099s or K-1s as required.
 – If the DST is a trust: 1099 (no K-1)
 – If the DST is held through an LLC/LP: K-1 (always)
• Must be signed by the investor or their entity.

5. Entity/Trust Documentation (if applicable)
• Trusts: Copy of the trust certificate or pages showing trustee powers and names.
• LLCs/Partnerships: Operating agreement, EIN letter, and Certificate of Formation.
• Foundations or 501(c)(3)s: IRS determination letter and formation documents.

6. Transfer/Wiring Instructions Form
• Indicates where the funds are coming from (e.g., direct wire, 1031 exchange via Qualified Intermediary, or IRA).
• Also confirms how the DST interest should be titled.

7. Custodial Forms (if investing through a self-directed IRA)
• Must be coordinated with the IRA custodian (e.g., Equity Trust, Midland, etc.).
• Adds a layer of paperwork and timing—so it’s important to start early.

What kind of taxes should I expect on my DST income?

Out of your annual cash-on-cash return, approximately 60% to 80% of that income could potentially be offset by depreciation, which could lower your taxable income.