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Using a 1031 Exchange to Invest in a DST
Selling an investment property can create a large tax bill, especially when the property has increased in value over time. A 1031 exchange may allow an investor to defer capital gains and depreciation recapture taxes by reinvesting the proceeds into qualifying replacement real estate. One option is a Delaware Statutory Trust, or DST, which allows investors to own an interest in a portfolio of commercial properties without managing the properties themselves.
A DST can be used as replacement property in a 1031 exchange when it meets the applicable requirements. Instead of purchasing another property outright, an investor buys an interest in a trust that holds real estate. The investor receives a share of the income and tax items associated with the underlying properties. The sponsor handles property management, accounting, reporting, and investor services. That can reduce the work involved in owning real estate, but it also means the investor gives up direct control over the properties.
How the 1031 exchange timeline works
The exchange process has firm deadlines. The ExchangeRight document describes a 45-day period after the sale to identify potential replacement properties and a total exchange period of 180 days to complete the purchase. Sale proceeds must be held by a Qualified Intermediary; the investor cannot take possession of the funds and still complete a standard 1031 exchange. The document also notes that investors generally need to reinvest an amount equal to or greater than the value of the property sold to receive full tax deferral. Specific circumstances and tax outcomes should be reviewed with a qualified tax professional.
A DST may help investors meet the timing requirements because the properties have typically been acquired and the offering’s underwriting, due diligence, financing, and closing work have been completed in advance. The document says some DST investments may close in as few as one to three days. Actual timing depends on the offering and the transaction.
Potential benefits—and what to review
A DST may provide access to several properties, tenants, locations, or property types through one investment. It can also provide passive income, potential tax deductions, and limited liability. Some offerings use non-recourse financing, which may help investors address the debt portion of a 1031 exchange. These features vary by offering and should be reviewed in its documents.
DSTs also have limitations. Investors generally cannot make property-level decisions, and the investment may be difficult to sell before the sponsor’s planned exit. Some DSTs may offer a future 1031 exchange, a 721 exchange into a REIT, or a cash-out option. Those choices depend on the specific offering and are not guaranteed.
A 1031 exchange is not automatically the right choice for every property owner. The property being sold must qualify as investment or business real estate, and the investor’s tax basis, remaining debt, sale price, deadlines, and plans for the proceeds all matter. Before moving forward, review the details with your CPA, legal counsel, Qualified Intermediary, and financial advisor.
If you’re considering selling an investment property, contact Verus Financial Group to discuss how a potential 1031 exchange may fit into your broader financial plan. Starting the conversation before the sale can leave more time to understand the process and review available options.
Source: ExchangeRight, 1031 and DST Investing Strategy, revised February 2026.
The information presented in this article is provided for educational purposes only. The article includes a discussion of Delaware Statutory Trusts ("DSTs") and other real estate-related investment structures with ExchangeRight. The information presented does not constitute an offer to sell, or a solicitation of an offer to buy, any security, including any DST interest. DST interests are securities offered only pursuant to a Private Placement Memorandum to accredited investors and are subject to significant limitations. DSTs are not suitable for all investors and involve a substantial degree of risk. Verus Financial Group is not affiliated with and does not receive compensation from ExchangeRight in connection with the material presented here. Advisory services are offered through Verus Financial Group, an investment adviser registered with the U.S. Securities and Exchange Commission.
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