A 1031 exchange using a Delaware Statutory Trust (DST) provides several significant advantages for real estate investors, particularly those seeking to defer capital gains taxes, simplify property management, and achieve portfolio diversification.

Key advantages of a 1031 DST include:

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Full Tax Deferral

Investors can defer capital gains, state income taxes, and depreciation recapture by exchanging into a DST. This defers potential taxes until a later sale or provides the potential for elimination upon inheritance due to a step-up in basis.

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Portfolio Diversification

DSTs allow fractional ownership in multiple properties of various types (multi-family, commercial, industrial) and locations. This reduces risk by spreading investments across asset classes and geographies, providing more stable income and appreciation potential.

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Full Tax Deferral

DSTs eliminate active management responsibilities, including dealing with tenants, maintenance, and compliance. Professional sponsors manage all property operations, offering investors a truly hands-off experience.

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Access to Institutional-Quality Real Estate

Individual investors gain access to properties and portfolios typically only available to large institutions, improving the quality and scale of their investments.

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Flexible and Lower Minimum Investment

Investors can purchase fractional interests for as little as $25,000–$100,000, enabling smaller investors to participate and more easily deploy leftover, otherwise taxable, proceeds (“boot”).

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Ease of Closing and Meeting IRS Deadlines

DSTs are pre-packaged and can close quickly—often within days—helping investors meet strict 1031 timelines (45-day identification, 180-day completion).

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Limited Personal Liability

Investors typically have no personal liability for property-level debt held within the DST structure; loans are non-recourse to individual owners.

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Estate Planning Advantages

DSTs simplify estate distribution, as interests can be easily divided among heirs. Heirs receive a step-up in basis, potentially eliminating accrued capital gains taxes.

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Backup Solution for Exchanges

DSTs are frequently used as backup properties to ensure exchange completion if primary real estate acquisitions fall through, reducing failure risk.

These features make 1031 DSTs a compelling solution for investors aiming for ongoing tax deferral, streamlined management, portfolio safety, and estate planning efficiency. However, investors should consult tax and legal professionals to ensure suitability for their specific circumstances.

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