1031 Exchange & DST
Retire From Being a Landlord, Not From Real Estate
Sell your rental property, defer the capital gains tax and move into professionally managed, diversified real estate.
Diversification
From One Property to Many
Instead of one rental on one street, a large diversified REIT can spread your investment across many properties, regions and types of real estate. It is a way to spread your eggs across more baskets.
Property types shown are examples. Holdings vary by program. Diversification does not ensure a profit or protect against loss.
The idea
From Landlord to Passive Owner
Many rental property owners reach a point where they are done with tenants, repairs and late-night phone calls, but selling outright would mean a large tax bill. A 1031 exchange into a Delaware Statutory Trust (DST) can defer that tax and keep your money invested in real estate, without you being the landlord.
Owning a rental yourself
- Tenants, repairs and vacancies are yours to handle
- Your money sits in one property, in one market
- Selling usually means paying capital gains tax
- Need cash? You may have to sell the whole property
Owning through a DST
- Professional managers run the properties
- Capital gains tax can be deferred
- Access to large, institutional-quality real estate
- Potential for regular income from rents
How it works
Three Steps, One Tax-Deferred Path
Sell with a 1031 exchange
You sell your rental property and the proceeds go to a qualified intermediary instead of to you. You have 45 days to identify a replacement and 180 days to close.
Exchange into a DST
Your proceeds buy an interest in a Delaware Statutory Trust, a passive trust that owns one or more large properties. It counts as “like-kind” replacement property, so your tax stays deferred.
Potential 721 exchange into a REIT
After a holding period of generally at least two years, the REIT’s operating partnership may acquire the DST properties in exchange for partnership units. You then own a slice of a much larger, diversified portfolio, still tax-deferred.
Why Deferring the Tax Matters
More of your money stays invested
When you sell an appreciated rental, federal and state taxes can take a large share of your gain. A 1031 exchange lets you reinvest the full amount and keep it working for you.
In this illustration, an owner bought a property for $1 million and sells it for $3 million. Selling and paying the tax leaves about $2.2 million to reinvest. Exchanging keeps the full $3 million invested, about 36% more.
Illustrative Net Proceeds
Hypothetical example for illustration only. Assumes no mortgage, $700,000 of depreciation, a 20% capital gains tax, 3.8% net investment income tax, 25% depreciation recapture tax and a Colorado resident subject to a 4.4% state income tax rate. Your numbers will differ. Taxes are deferred, not eliminated.
What You Can Gain
Potential benefits
Tax-efficient to move
Both the 1031 exchange and the 721 exchange are designed to defer capital gains tax, so you are not writing a large check to move your money.
Income potential
DSTs and REITs typically pay distributions from rental income, often monthly. Distributions are not guaranteed.
More flexibility
Partnership units can be divided. If you need cash later, you may be able to redeem a portion instead of selling an entire building, subject to the REIT’s limits.
Estate planning
Under current tax law, heirs generally receive a step-up in basis when the owner passes away, which can reduce or erase the deferred gain for them.
Who Is This For?
And who qualifies
- Rental and investment property owners with large built-in gains
- Owners who are ready to stop being a landlord
- Investors who want to keep real estate in their plan but spread out their risk
- Families thinking about how real estate passes to the next generation
DSTs are private placements available to accredited investors only. In general, that means a net worth over $1 million, not counting your primary home, or income over $200,000 ($300,000 with a spouse) in each of the last two years.
raised by DSTs from January through August 2026, up more than 33% from the same period in 2025.
Source: Mountain Dell Consulting, as reported by AltsWire, September 2026.
Your Questions, Answered
What is a 1031 exchange?
It is a rule in the tax code that lets you sell an investment property and reinvest the proceeds in another “like-kind” property without paying capital gains tax right away. You must identify the replacement within 45 days and close within 180 days, and a qualified intermediary has to hold the money in between.
What is a DST?
DST stands for Delaware Statutory Trust. It is a passive trust that owns one or more investment properties. You own a share of the trust, professionals manage the real estate, and your share can qualify as replacement property in a 1031 exchange.
What is a 721 exchange?
It lets property be contributed to a REIT’s operating partnership in exchange for partnership units, without triggering tax at that time. It is how a DST investment can become part of a much larger, diversified real estate portfolio.
Is the move into the REIT guaranteed?
No. The REIT’s operating partnership has the option, not the obligation, to make the exchange, generally no sooner than two years in. You should be comfortable owning the DST on its own merits.
Can I take income from it?
Yes, that is one of the main reasons people use it. DSTs and REITs typically pay regular distributions from rental income. The amount can change and is not guaranteed.
How do I get money out if I need it?
While you are in the DST, your money is generally tied up. After a 721 exchange, partnership units can usually be redeemed in part after a holding period, but REITs limit how much can be redeemed and can pause redemptions. Redeeming units is a taxable event, so we plan withdrawals carefully.
Do I ever pay the tax?
The tax is deferred, not erased. It generally comes due when you sell or redeem. After a 721 exchange you typically cannot do another 1031 exchange with those units. Under current law, heirs who inherit generally receive a step-up in basis.
Does my own home qualify?
No. A 1031 exchange is for real estate held for investment or business use, like rental property. Your primary residence does not qualify.
What are the risks?
These are real estate investments. Values and income can fall, you could lose money, and your investment is not easy to sell. The tax rules are strict, and a missed deadline can make the sale taxable. We work alongside your tax professional and a qualified intermediary on every exchange.
Thinking About Selling a Rental Property?
Talk with us before you list it. The 1031 clock starts the day you close, and the planning works best when it starts early.
This page is for education only and is not tax or legal advice. Tax rules are complex and can change, so consult your tax professional about your situation. DST interests are private placements offered only to accredited investors through offering documents. Real estate investments involve significant risk, including loss of principal, limited liquidity and no guarantee of income. Diversification does not ensure a profit or protect against loss.