Delaware Statutory
Trusts.
A passive real estate investment vehicle that lets you own institutional-quality properties while qualifying as 1031 exchange replacement property in 2026.
What is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a legal entity created under Delaware law that holds title to one or more investment properties. Investors purchase fractional ownership interests (beneficial interests) in the trust, which owns and operates institutional-quality real estate.
In 2004, the IRS issued Revenue Ruling 2004-86, which confirmed that DST interests qualify as "like-kind" real property for 1031 exchange purposes. Section 1031 remains fully intact for real estate in 2026, so DSTs continue to be one of the most popular replacement property options for investors completing an exchange.
Why DSTs Still Work in 2026, Especially in Pennsylvania
The tax policy headlines of 2025 left many investors asking whether 1031 exchanges were going away. Here is the answer: Section 1031 remains fully intact for real estate. The One Big Beautiful Bill Act preserved the provision unchanged, and DST interests still qualify as like-kind replacement property in 2026.
Pennsylvania adds to the appeal. Since the 2023 tax year, Pennsylvania recognizes like-kind exchanges at the state level through Act 53 of 2022 (House Bill 1342), so exchanging into a DST defers both federal capital gains tax and Pennsylvania state income tax on the gain. For Lehigh Valley investors, that means the full sales proceeds can keep growing in a passive, professionally managed asset.
- Complete a 1031 exchange into fractional ownership of institutional-quality assets that would be out of reach on your own.
- Defer federal capital gains tax and Pennsylvania state income tax on the exchanged gain, because Pennsylvania now follows the federal like-kind rules.
- Enjoy truly hands-off ownership: the DST sponsor handles acquisitions, operations, capital improvements, and the eventual sale.
Benefits of DST Investments
1031 Exchange Qualified
Section 1031 remains intact for real estate in 2026, and DST interests qualify as replacement property, deferring capital gains at both the federal and Pennsylvania state level while moving into a passive investment.
Hands-Off Ownership
No tenant management, no maintenance decisions, no property management headaches. The DST sponsor handles everything.
Institutional-Quality Assets
DSTs often own large apartment complexes, industrial properties, medical office buildings, and other institutional assets that individual investors couldn't afford alone.
Professional Management
Experienced asset managers handle acquisitions, operations, capital improvements, and eventual disposition of the properties.
Diversification
Investors can spread their capital across multiple properties and markets, reducing concentration risk.
Monthly/Quarterly Distributions
DSTs typically pay regular cash distributions from rental income, providing ongoing passive income.
Depreciation Benefits
Investors receive their proportionate share of depreciation deductions, reducing taxable income.
Who Are DSTs Best Suited For?
Ideal For
- Investors executing a 1031 exchange who want passive ownership
- Retirees looking to exit active property management
- Heirs inheriting investment property who want to diversify
- High-net-worth investors seeking tax-advantaged real estate exposure
Less Ideal For
- Investors who want direct control over property decisions
- Those seeking immediate liquidity (DSTs are typically illiquid)
- Investors who need to invest less than $25,000 (minimums vary)
- Those who prefer hands-on value-add investing
Frequently Asked Questions
Do DST exchanges still work in 2026?
Yes. Section 1031 remains fully intact for real estate under the One Big Beautiful Bill Act, and Pennsylvania has recognized like-kind exchanges at the state level since the 2023 tax year. A DST exchange completed in 2026 defers both federal capital gains tax and Pennsylvania state income tax on the gain.
What is the minimum investment for a DST?
Minimum investments vary by sponsor and offering, but typically range from $25,000 to $100,000. Some offerings have lower minimums for accredited investors. DSTs are generally only available to accredited investors (net worth over $1 million or annual income over $200,000/$300,000 for married couples).
What is the typical holding period for a DST?
Most DST investments have a projected holding period of 5-10 years. The sponsor ultimately controls the timing of the sale, though they typically align with the investment's business plan. At disposition, investors may have the option to do another 1031 exchange.
Are DSTs the same as REITs?
No. REITs are publicly traded securities that can be bought and sold daily. DSTs are private placements that are illiquid and not publicly traded. However, DST interests do qualify for 1031 exchanges, while REIT shares generally do not. DSTs also offer depreciation pass-through, which REITs (as corporations) do not.
Interested in exploring DSTs as a 1031 exchange replacement option or passive investment? Tim Tepes can help you evaluate whether DSTs fit your investment strategy. DST offerings and exchange rules are complex, so confirm the details with a qualified tax advisor or CPA before investing, and review the offering documents carefully.