The Ins and Outs of Using Delaware Statutory Trusts for 1031 Exchanges


Many investors who are looking to defer capital gains taxes for their real estate properties turn to 1031 exchanges. However, not all 1031 exchange structures are created equal and choosing the right one can mean the difference between success and failure. One of the most popular options among investors is Delaware Statutory Trusts or DSTs. In this blog post, we’ll dive into why DSTs are a popular choice and the benefits they offer 1031 exchange advisors near me.

Tax Benefits
The most significant advantage of DSTs is the tax benefits they provide. When you participate in a DST, you own a fraction of a property along with other investors. Since you don’t own the entire property, you can avoid the hassles of being a landlord and still defer capital gains taxes. Additionally, DSTs allow investors to reinvest their money in a new property without paying any taxes until they sell their shares in the trust.
Limited Personal Liability
Investing in real estate comes with risks, including personal liability if something goes wrong. By choosing a DST for a 1031 exchange, you can mitigate your personal liability. As a fractional owner, you’re not responsible for the entire property, and if something goes wrong, you’re only liable for your share of the investment. This is a crucial factor that many investors take into consideration while making their decisions.
Another benefit of DSTs is that investors can diversify their investments and reduce the risk associated with investing in a single property. With DSTs, investors can own fractional interests in different types of properties, including multifamily buildings, office spaces, or industrial spaces. Additionally, they can invest in properties located in different parts of the country, thus reducing their risks.
Professional Management
Investing in a property involves a lot of work, including managing tenants, collecting rent, and handling maintenance issues. However, with DSTs, the properties are professionally managed by experienced real estate professionals. They handle all the day-to-day operations, freeing investors from the hassle of property management. It’s one of the reasons why many investors prefer DSTs for their 1031 exchanges.
Passive Income
As part of a DST, investors can receive passive income from the trust, which is paid out regularly. These payments are usually distributed monthly or quarterly and can provide a steady stream of income for investors. Additionally, these payments are backed by the properties owned by the trust, so there’s a level of security involved as well.
Delaware Statutory Trusts have become a popular choice for investors who are looking to defer capital gains taxes for their real estate properties. DSTs offer tax benefits, limited personal liability, diversification, professional management, and passive income, making them an ideal choice for 1031 exchanges. However, it’s vital to understand the risks involved before investing in a DST. Speak with your financial advisor to determine whether a DST is the right choice for you.