A Delaware Statutory Trust holds real estate in trust and passes fractional beneficial interests to investors. The threshold question for any 1031 exchanger is whether that interest counts as like-kind replacement property. It does, and the authority is specific.

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A Trust That Holds Real Estate

A Delaware Statutory Trust is a legal entity that holds real estate, a single property or a portfolio, in trust, with investors receiving fractional beneficial interests rather than direct title. Those interests represent passive, diversified co-ownership across retail, self-storage, industrial, or multifamily assets, depending on the offering. The structure lets multiple investors participate in institutional-grade property they could not acquire individually.

Revenue Ruling 2004-86

The IRS codified the tax treatment in Revenue Ruling 2004-86: a beneficial interest in a DST qualifies as like-kind property for Section 1031 exchange purposes. That ruling is the legal foundation on which every DST exchange rests. Without it, the structure would function as a real estate investment, but not as a valid exchange replacement.

Investors holding appreciated residential or commercial property can sell and defer the capital gains tax that would otherwise be owed at sale, routing the proceeds into a DST rather than taking a taxable distribution. The deferral mechanism is identical to a conventional Section 1031 exchange; the structural difference is what the investor receives on the other side.

Decision criterion: If the investor needs a passive, co-ownership structure that the IRS treats as like-kind property, a DST satisfies that requirement by statute and ruling.

The Like-Kind Universe

Like-kind property eligible for Section 1031 treatment is broader than many investors assume. Qualifying asset types include:

  • Apartment buildings and multifamily properties
  • DST beneficial interests
  • Duplexes and triplexes
  • Single-family rental properties
  • Vacant land and farmland
  • Office and warehouse properties
  • Self-storage facilities
  • Hotel assets

Each of those can serve as either the relinquished or replacement property in a qualifying exchange. A DST interest representing co-ownership in an industrial distribution center or a healthcare net-lease property sits within that eligible universe.

Whether the structure fits a live exchange is usually a timing question, covered in the timing problem a DST is built to solve. Accredited investors review current DST offerings through the partnered broker-dealer's intake process.