Can You 1031 Out of a DST? DST Full Cycle and Exit Options

Key takeaways

• Yes, you can usually 1031 out of a DST. A properly structured DST interest can qualify as real estate for a 1031 exchange, so your share of the sale can go into a new 1031 exchange.
• You need a qualified intermediary in place before the DST's sale closes. If the sale money reaches your own account first, that money is generally taxable.
• Your 45-day and 180-day clocks start on the day the trust sells the property, not the day you hear about it. Plan before the sponsor's notice arrives.
• Your share of the DST's loan payoff counts as debt you need to replace. Leaving it out is a common way a DST exit creates a surprise tax bill.
• Hold periods are projections, not promises. In my offering records as of October 2026, a 10-year projected hold is the most common, at 31 offerings, but sponsors and markets decide when a sale really happens.
• If the DST converts to a REIT through a 721 exchange, or to an LLC, you generally lose the option to 1031 your share later.

What does "DST full cycle" mean?

A Delaware Statutory Trust, or DST, is a trust that owns income-producing real estate. Many investors each own a share of it. My complete guide to Delaware Statutory Trusts covers how they are built and taxed, so I'll stay focused here on how they end.

"Full cycle" is an industry phrase. It means an investment has gone all the way around. The property was bought, held, sold, and the money went back to investors. Until that last step, nobody really knows how the investment did. Everything before the sale is a projection.

Here is the full cycle in five stages:

1. Acquisition. The sponsor buys the property and places it in a new trust. The sponsor is the real estate company that runs the DST.
2. Offering. The sponsor sells interests in the trust to investors, often over several months.
3. Hold. The trust collects rent and may pay distributions. Distributions are not guaranteed.
4. Sale. The sponsor decides to sell, finds a buyer, and closes.
5. Payout. The trust pays off any loan and costs. It then sends each investor their share of what is left.

Your choices live in stage five. That's when you decide whether to do another 1031 exchange, which is a tax-deferred swap of one investment property for another, take cash, or follow a different path the program allows.

I track more than 1,100 full-cycle 1031 DST investments for performance. I care about that history because full-cycle results show what actually happened. A projection only shows what someone hoped would happen.

Can you 1031 out of a DST?

Yes, in most cases. When a DST sells its property, you can generally roll your share of the proceeds into a new 1031 exchange. That's true even if you came into the DST through a 1031 exchange in the first place. Many investors chain exchanges together for decades.

Why it works

A 1031 exchange lets you sell investment real estate and buy other investment real estate without paying tax on the gain right away. The tax is deferred, not erased. The rule comes from Section 1031 of the Internal Revenue Code. It says no gain is recognized on the exchange of real property held for investment or business use when it is exchanged "solely for real property of like kind."

The key words are "real property." A 1031 exchange only works when you sell real estate and buy real estate.

A DST interest can qualify as like-kind replacement property because of IRS Revenue Ruling 2004-86. That ruling treats a properly structured DST as a grantor trust. A grantor trust is a trust that the tax code looks through. Each investor is treated as owning a fractional share of the property itself.

The ruling says a taxpayer "may exchange real property for an interest in the Delaware statutory trust" without recognizing gain, "if the other requirements of § 1031 are satisfied." The same logic works in reverse at the end. When the trust sells, you are treated as selling your share of real estate. That share can be your relinquished property in a new exchange. Relinquished property is the property you give up in an exchange.

Each investor decides alone

This is one of the most useful features of a DST. Every investor makes their own choice at the sale.

Say a trust has 300 investors. One can do a new 1031 exchange. Another can take cash and pay the tax. A third can do a partial exchange and keep some cash. Nobody needs anyone else's approval.

That's different from a partnership or an LLC. In those, the entity sells, and the entity does the exchange or doesn't. Members who want different things have to sort it out before the sale.

When you can't 1031 out

There are three common situations where you generally can't do a new 1031 exchange with your share.

• The trust converted to an LLC. Many DSTs have a "springing LLC" clause. It lets the trust convert into a limited liability company if it needs to do something a DST can't, like refinance. An LLC with several owners is generally taxed as a partnership. A partnership interest isn't real property, so your share of a later sale may not qualify for your own 1031.
• The trust went into a REIT through a 721 exchange. A real estate investment trust, or REIT, is a company that owns many properties. An operating partnership is the partnership through which a REIT owns its properties. A 721 exchange is a swap of property for an interest in a partnership, under Section 721 of the tax code. If a REIT's operating partnership bought the DST property for partnership units, you now hold units, not real estate. Those can't be exchanged under Section 1031.
• You didn't set up a qualified intermediary in time. A qualified intermediary is a company that holds your sale money during the exchange. If the sale money is paid to you before one is in place, you've generally received cash. That cash is taxable, even if you buy real estate with it a week later.

The first two depend on the program. The third depends on you. I'll come back to all three.

How long do DSTs hold their properties?

Most offering documents project a holding period. In my offering records as of October 2026, a 10-year projection is the most common one. Other projected holds include 5 to 10 years and 7 years, plus a few 2-year programs.

But a projection is not a promise. It's the sponsor's plan on the day the offering launches. The actual hold can be shorter or longer, and you don't control which.

What sets the projected hold

Sponsors usually line up the hold with three things.

• The loan term. A DST can't refinance under the rules of Rev. Rul. 2004-86, which says the trustee "may not renegotiate the terms of the debt." So if a DST has a 10-year fixed-rate loan, the sponsor generally plans to sell before year 10. My guide to DST debt and 1031 debt replacement explains why that loan matters so much.
• The lease term. In a single-tenant DST, the sponsor often wants to sell while plenty of lease term is left. A building with 12 years left on a lease is usually easier to sell than one with 2 years left.
• The business plan. Some programs plan a quick sale after a short stabilization period. Others aim to hold a stable asset for a long time.

Why holds run longer than projected

Holds can run longer than projected. A few common reasons:

• The market is weak at the planned exit. If buyers would pay less than the sponsor thinks the property is worth, the sponsor may wait.
• Interest rates are high. Higher rates can push down what buyers will pay for real estate.
• A tenant problem needs fixing first. A vacancy or a lease renewal can make it hard to sell for a fair price.
• The loan allows an extension. Some loans include an extension option, which gives the sponsor more time.

Why holds sometimes end early

A sponsor may sell early if a buyer offers a strong price. A tenant may also buy the property, or a REIT may use a 721 option. In a 721 program, the move into the REIT can come years before the projected sale date.

The honest planning rule is simple. Only put money into a DST that you could leave alone for the full projected hold and then some. The SEC's bulletin on private placements says investors in these securities "should be prepared to hold the securities indefinitely." I agree with that advice.

What happens when a DST sells?

Most investors only go through a DST sale a few times in their lives. Here's what the process usually looks like from the investor's chair.

The sponsor decides

You generally don't vote on whether or when the property sells. The sponsor, through its affiliate acting as trustee or manager, makes that call under the trust agreement. You'll usually hear about it once a sale is under contract or close to it.

You get a notice and an election form

Most sponsors send investors a notice before closing. It usually says the property is being sold, gives an expected closing date, and asks how you want your proceeds handled. The form often has choices like these:

• Send my proceeds to my qualified intermediary for a 1031 exchange.
• Send my proceeds to me.
• Split them between the two.

The timing of this notice varies. Sometimes it comes weeks ahead. Sometimes it's shorter. That's why I tell clients to have a plan ready long before any notice arrives.

The sale closes

At closing, the buyer pays the price. Out of that money, the trust pays the loan, if there is one. It also pays selling costs, such as broker commissions and title fees. Many DSTs also pay the sponsor a disposition fee at sale, which is a fee for handling the sale. Some pay the sponsor a share of profits above a set return, often called a "promote." These are all disclosed in the offering documents.

Proceeds go out pro rata

The trust can't reinvest sale proceeds. Rev. Rul. 2004-86 bars the trustee from exchanging the property for other property, and it requires cash to be distributed. So the net proceeds go out to investors pro rata, which means in proportion to each person's share.

Some money may come later

Sponsors sometimes hold back part of the proceeds for final costs, then release it later. Ask the sponsor how and when any holdback will be paid. If it arrives after your exchange is done, it may be taxable cash, so your CPA should know about it ahead of time.

A sale timeline

Here is how the pieces usually line up. The timing in the middle column is typical, not fixed.

How to 1031 out of a DST, step by step

Here is the process I walk clients through when one of their DSTs is heading to a sale. The steps are the same whether the DST sells in year 3 or year 13.

Step 1: Know your numbers before the notice arrives

You need three figures from your records and your sponsor:

• Your expected share of the sale price. Your ownership percentage times the expected price.
• Your share of the loan payoff. Your percentage times the loan balance at sale. If the DST is all-cash, this is zero.
• Your adjusted basis. Basis is your tax cost. In a chain of exchanges, it carries over from property to property and goes down with depreciation. Your CPA tracks it.

Most sponsors will tell you the loan balance and your percentage if you ask. Your CPA can then estimate the gain you'd defer.

Step 2: Line up a qualified intermediary before closing

A qualified intermediary, or QI, is a company that holds your sale money during a 1031 exchange. You sign an exchange agreement with it. The Treasury rules at 26 CFR 1.1031(k)-1 require that agreement to limit your right "to receive, pledge, borrow, or otherwise obtain the benefits of money" before the exchange ends, apart from a few listed exceptions.

The IRS's like-kind exchange fact sheet says "You can not act as your own facilitator." It also warns that "taking control of cash or other proceeds before the exchange is complete" may disqualify the whole exchange. My guide on how to choose a qualified intermediary covers what to ask.

The QI has to be in place before the DST sale closes. Give the QI the sponsor's contact details, and give the sponsor the QI's wiring instructions. Then confirm both sides have what they need.

Step 3: Return the election form

Fill out the sponsor's form and send it back early. Name your QI and the amount to send. If you want some cash, say exactly how much.

Step 4: Shortlist replacement property early

Start looking before the sale closes. The 45 days go fast. Your options include another DST, a property you buy directly, or a mix of both. Your new property can be in a different state and a different property type, as long as it's real estate held for investment or business use.

Step 5: Identify within 45 days

Your clock starts on the day the trust's sale closes. By midnight of day 45, you must send a signed, written list of possible replacement properties to your QI.

The Treasury rules give you three ways to build the list. You can name up to three properties of any value. You can name more if their total value is no more than 200% of what you sold. Or you can name more than that if you actually buy at least 95% of the total value. My guide to the 1031 identification rules has examples of each.

Step 6: Close within 180 days

You must close on your replacement by day 180. If your tax return for the year comes due first, that date wins unless you extend the return. Section 1031(a)(3) sets both deadlines, and the IRS fact sheet says they can't be extended except in presidentially declared disasters.

Step 7: Match both value and debt

To defer all of your gain, you generally need to do two things. Buy replacement property worth at least your share of the net sale price. And reinvest all of your share of the cash. If your DST had a loan, the second test isn't enough on its own. I explain why in the next section.

Step 8: Report the exchange

You report the exchange on IRS Form 8824. The IRS says the form is used "to report each exchange of business or investment property for property of a like kind." Your CPA will need the sponsor's closing statement, your share of the sale, and your replacement closing documents.

Why your share of the DST's loan matters at the exit

This is the part that catches people. When a leveraged DST sells, the trust pays off its loan. Because you're treated as owning your share of the property, you're also treated as being relieved of your share of that loan.

In a 1031 exchange, debt relief works like cash. The IRS fact sheet lists "relief from debt" alongside cash as things that can "trigger some taxable gain in the year of the exchange." To avoid that, you generally need to take on at least as much new debt, or add outside cash to make up the difference.

Here's a simple hypothetical.

• Say your DST share was $1,000,000 of property with $500,000 of debt.
• At sale, $500,000 of debt goes away, and you get the cash that's left.
• If you put that cash into an all-cash DST, you've replaced the cash but not the debt. That gap can be taxable.

You don't have to take on a loan you sign personally. Your share of a leveraged DST's loan generally counts as replacement debt. You can also add your own cash to cover the gap. My guide to boot in a partial 1031 exchange shows the netting rules in detail.

A worked example: three ways out of the same DST

This is a hypothetical example with round numbers. It doesn't represent any offering or any client. It isn't tax advice, and your CPA should run your real figures.

The starting point

Say ten years ago you put $500,000 of exchange money into a DST with a 50% loan-to-value. Loan-to-value, or LTV, is the loan divided by the property's value. At 50% LTV, your $500,000 of equity bought a $1,000,000 share of the property, with a $500,000 share of the loan.

The loan was interest-only, so the balance stayed at $500,000. Your adjusted basis, carried over from earlier exchanges and reduced by depreciation, is now $300,000. Over your whole chain of exchanges, you've taken $350,000 of depreciation.

Now the trust sells. Your share looks like this:

To defer all $810,000, you generally need replacement property worth at least $1,110,000. You need to reinvest all $610,000 of cash. And you need at least $500,000 of new debt, or outside cash to cover any shortfall.

Path A: 1031 into a leveraged DST

You put all $610,000 into a new DST with a 46% LTV. Your equity is 54% of your share.

• Your share of the new property: $610,000 ÷ 0.54 = $1,129,630
• Your share of the new debt: $1,129,630 × 0.46 = $519,630

Both tests pass. $1,129,630 is more than $1,110,000, and $519,630 is more than $500,000. If everything else is done right, you'd generally recognize no gain now.

Here's a detail worth noticing. A DST at 45% LTV would have given you a share of only $1,109,091. That's $909 short of your target. Small gaps like that are why it pays to have your CPA run the math before anything gets identified.

Path B: 1031 into an all-cash DST

You put all $610,000 into an all-cash DST. You reinvested every dollar of cash. But your replacement value is only $610,000, and your new debt is zero.

That leaves a $500,000 debt gap, which is mortgage boot. Boot is anything you get in an exchange that isn't like-kind real estate. You'd recognize $500,000 of your $810,000 gain, unless you add $500,000 of your own cash or buy other leveraged property alongside it.

Path C: Take the cash

You tell the sponsor to send all $610,000 to you. The whole $810,000 gain is now taxable. Assume you're in the top federal brackets. Also assume all $350,000 of depreciation was on the building, with no cost segregation, and that your other income already puts you above the 20% and 3.8% thresholds.

• Gain from depreciation, taxed at up to 25%: $350,000 × 25% = $87,500. The IRS's Topic 409 says this part of the gain, called unrecaptured section 1250 gain, "is taxed at a maximum 25% rate."
• The rest of the gain at 20%: $460,000 × 20% = $92,000
• The 3.8% net investment income tax, a federal tax on investment income for higher earners, on $810,000: $30,780. Under Section 1411, it applies above $250,000 of income for joint filers and $200,000 for single filers.
• Federal total: about $210,280

That leaves about $399,720 of your $610,000 before state tax. In a high-tax state, the state bill can be large too.

Notice that the tax is figured on the gain, not on the cash. The gain is bigger than you might expect, because it includes the debt that was paid off on your behalf.

The three paths side by side

None of these paths is right for everyone. Path A keeps the most gain deferred, but it keeps you in debt. Path B is simpler, but it costs tax unless you add cash. Path C ends the chain and gives you full control of your money. The choice depends on your age, your income needs, and how you feel about leverage.

What are your exit options when a DST sells?

Here are the paths, side by side. The details depend on the program's documents, so read them before you invest.

What is a 721 roll-up, and how does it change your exit?

Some DST sponsors are tied to a REIT. In these programs, the REIT's operating partnership may have the right to buy the DST property later. It pays with operating partnership units instead of cash.

That swap uses Section 721, which says no gain is recognized "in the case of a contribution of property to the partnership in exchange for an interest in the partnership." So the swap itself is generally tax-deferred.

But it changes your exit for good. Once you hold units, you can't do another 1031 exchange with them. Turning units into cash or REIT shares is generally taxable. People call it a one-way door, and I think that's fair.

Three questions decide how a 721 program affects you:

1. Is the 721 exit optional, mandatory, or not offered? With a mandatory exit, your interest converts if the operating partnership acts. With an optional one, the documents may let you choose.
2. Who sets the value? Usually an appraisal arranged by the sponsor. If values have fallen, you get fewer units.
3. What if the option is never used? Then the DST may simply sell for cash someday, and you're back to the regular exit choices.

My 721 exchange guide walks through the whole path, including the debt math and the redemption limits. If you want to keep doing 1031 exchanges for life, I'd read it before you buy a 721 program.

What if you want to take the cash?

Some people get to the end of a DST and decide they're done. They're ready to pay the tax and have their money back. That's a legitimate choice.

When you take cash, the deferred gain from every exchange in your chain comes due. If you've exchanged three or four times over 30 years, that can be a large number. As the example above shows, the debt paid off at sale adds to the gain too.

The tax comes in layers

Recognized gain on real estate is generally taxed in layers. The part tied to depreciation on buildings is generally taxed at up to 25% federally. Any depreciation on personal property, such as from a cost segregation study, can be taxed as ordinary income. The rest is long-term capital gain, taxed at up to 20%. Many investors also owe the 3.8% net investment income tax, plus state tax.

You can take part of it

You don't have to choose all or nothing. You can send most of your share to a QI and keep some cash. That's a partial exchange. You owe tax on the cash you keep and on any debt you don't replace, up to the amount of your gain. The rest stays deferred.

My partial 1031 exchange guide, linked above, has four worked examples, including which part of the gain gets taxed first.

Cash can come later, too

Another option is to do a full exchange now and plan to take cash at a later sale. Or you can hold until death, which I cover next. The right timing depends on your income in each year and on your other plans.

What happens to a DST interest if you die before the sale?

Your interest passes to your heirs or your trust, just like other property. The DST keeps running, and the sale happens when the sponsor decides.

Under Section 1014, property inherited from someone who died generally takes a basis equal to "the fair market value of the property at the date of the decedent's death." That's called a step-up in basis. In practice, it can wipe out the deferred gain that built up over your whole chain of exchanges.

So when the DST later sells, your heirs may owe little or no tax on gain from before your death. They can also do their own 1031 exchange with their shares if they want to keep investing in real estate.

That's why many people in their 60s and 70s use DSTs as a long-term plan. They exchange, then exchange again, and hold until death. Congress could change the step-up rule, and it has considered changes before. My guide to the step-up in basis covers the planning in more depth, and your estate attorney should weigh in.

Can you get out of a DST before it sells?

Usually not easily. A DST has no redemption feature, and there's no public market for the interests. The trust agreement generally requires sponsor consent to transfer your interest.

A small secondary market does exist. But buyers there usually want a discount. NASD, the regulator for broker-dealers now known as FINRA, wrote about similar fractional real estate interests in 2005. In Notice to Members 05-18, it said resale may only be possible at "a significant discount" to the value of the interest.

There's another problem with an early sale. If you sell your interest yourself, you're the seller, not the trust. You'd need to set up your own 1031 exchange to defer the gain. That's possible, but it adds work, and you'd still be selling at a discount.

So I plan every DST as if early exit isn't an option. If you might need the money in the next several years, keep it out of a DST.

What are the risks at the exit?

Exits are where projections meet reality. Here are the risks I'd want you to weigh before you invest, not just at the end.

• The sale price may be lower than projected. You can lose part or all of your investment. With debt, losses are magnified.
• The timing isn't yours. The sponsor decides when to sell. A sale can come earlier or much later than projected.
• A loan maturity can force a bad sale. Because the trust can't refinance, a loan coming due in a weak market can push a sale at a poor price.
• You may not get much notice. If the sale moves fast, you have less time to plan your next exchange.
• The structure may change. A springing LLC conversion or a 721 roll-up can remove your option to 1031 later.
• Fees come out at the end. Disposition fees and any promote reduce what you receive.
• Your exchange can fail. Missing a deadline, or letting the money reach your account, can make your share of the gain taxable.
• Tax law can change. Section 1031 and the step-up in basis reflect current law.

DST interests are securities. Most are sold only to accredited investors, people who meet SEC income or net worth tests. They're sold through a private placement memorandum, the offering's legal disclosure document. They are illiquid, you have limited control, distributions are not guaranteed, and you can lose your entire investment.

Mistakes to avoid when a DST sells

Here are mistakes to watch for. Nearly all of them come down to planning too late.

1. Waiting for the notice to start planning. By the time the election form arrives, you may have weeks or less. Start thinking about your next move a year or more before the projected sale.
2. Forgetting the qualified intermediary. If no QI is in place when the sale closes, and the money comes to you, you've generally received taxable cash.
3. Ignoring your share of the debt. Reinvesting all your cash into an all-cash DST can still leave you with taxable boot if your old DST had a loan.
4. Counting the deadlines from the wrong day. Your 45 and 180 days start when the trust's sale closes, not when your check would have arrived.
5. Assuming the projected hold is the real one. Don't plan a home purchase or a tuition payment around a projected sale date.
6. Forgetting held-back money. Ask how any later payout will be handled, and tell your CPA.
7. Buying a mandatory 721 program by accident. If you want to keep exchanging, read the exit section of the offering documents before you invest.
8. Rolling into the sponsor's next offering without comparing. Some sponsors invite investors into a new program at the exit. That can be convenient. Compare it with the rest of the market anyway.
9. Putting everything into one replacement. You can split your share across several properties, within the identification rules.
10. Skipping your advisors. A DST exit is a tax event and a legal event as much as an investment one. Bring in your CPA, attorney and QI early.

How I help clients plan a DST exit

My background shapes how I think about exits. I studied applied mathematics and applied statistics at Babson College. Then I spent years in real estate acquisitions, management and development at ValueRock Realty Partners, Faris Lee Investments, Westport Capital Partners and Arbor Bay Capital Partners. I've been involved in more than $10 billion of real estate investment activity.

I offer DSTs from more than 20 institutional sponsors. My team and I review each one across five areas, with outside auditors in each: a broker-dealer review, an investment manager audit, an investment offering review, a real estate assessment, and institutional underwriting. The review is continuous, not a one-time check.

When one of your DSTs is heading to a sale, we start with a call about your goals and your numbers. Then we review the replacement options together. I tell you why I'm considering each one, what I like, and where I have reservations. When you're ready, my team coordinates the paperwork with the sponsor and your QI. Because DST properties are already acquired, closing can often take two to three business days once paperwork, funding and approvals are complete. You can see the offerings I currently have available when you're ready to look at specifics.

Securities are offered through Aurora Securities, Inc., member FINRA/SIPC. Baker 1031 Investments is independent of Aurora.

What my data shows

Here's what my offering records as of October 2026 show, across 76 DST offerings from 38 sponsors. These figures describe the offerings I track. They aren't a forecast or a promise about any future offering.

Ten years is the most common projected hold

The headline number for exit planning is this one: a 10-year projected hold is the most common, at 31 of 76 offerings. Others project 5 to 10 years or 7 years, and a few are 2-year programs.

These are the sponsors' projections, not promises. Exits depend on the sponsor and the market. I plan with clients as if a 10-year projection could run longer.

Most offerings have some kind of 721 path

How a DST can end matters as much as when. Here's how the 721 exit breaks down:

If you want to keep the option to 1031 out of a DST when it sells, look closely at the 13 mandatory programs. A mandatory 721 can end your 1031 chain without your vote. The 17 offerings with no 721 exit leave that door open. With the 44 optional ones, read the documents to see whether the option is yours or the sponsor's.

Debt shapes your next exchange

Leverage matters at the exit because your share of the loan payoff counts as debt relief.

If you exit a leveraged DST, you'll generally need leveraged replacement property, extra cash, or both. If you exit an all-cash DST, you have no DST debt to replace, so all-cash replacements work fine on the debt side.

Minimums make splitting easier

The median minimum investment is $100,000. Minimums range from $25,000 to $500,000, and 21 offerings (28%) start at $25,000. Lower minimums make it easier to split your exit proceeds across several replacements.

Frequently asked questions

Can you do a 1031 exchange out of a DST?

Usually, yes. A properly structured DST is treated as if you own a share of the real estate, so when the trust sells, your share of the proceeds can go into a new 1031 exchange. You need a qualified intermediary in place before the sale closes.

What does full cycle mean for a DST?

Full cycle means the investment has gone all the way around: the property was bought, held, sold, and the money went back to investors. Only full-cycle results show what really happened. Everything before the sale is a projection.

How long do DST investments usually last?

There's no fixed term. In my offering records as of October 2026, a 10-year projected hold is the most common, at 31 of 76 offerings, and others project 5 to 10 years. Actual holds depend on the sponsor and the market, and they can run longer.

Do I get a say in when my DST sells?

Generally, no. The sponsor's affiliate decides under the trust agreement. You decide what to do with your share of the proceeds, not when the sale happens.

When does my 45-day clock start after a DST sale?

It starts on the day the trust closes the sale of the property. That's your day 0, even if you don't see any money. You have until day 45 to identify replacements and until day 180 to close, or your tax return due date if that comes first.

Do I have to replace the DST's debt in my next exchange?

To defer all your gain, generally yes. Your share of the loan paid off at sale counts as debt relief, which works like cash in a 1031 exchange. You can replace it with new debt, such as a share of a leveraged DST, or with your own added cash.

Can I take some cash and exchange the rest?

Yes. That's a partial exchange. You owe tax on the cash you keep and any debt you don't replace, up to your gain, and the rest stays deferred.

Can I 1031 from one DST into another DST?

Yes. Another DST can qualify as like-kind replacement property, so many investors roll their share of one DST's sale into one or more new DSTs. You can also buy a property directly, in any state, or mix the two, as long as it's real estate held for investment or business use.

What if my DST converted to an LLC before it sold?

Then you likely hold an interest in an entity taxed as a partnership. A partnership interest isn't real property, so you may not be able to do your own 1031 exchange with your share. Ask your CPA and attorney how the conversion applies to you.

Can I 1031 out of a DST after a 721 exchange?

Not with the units. Once a REIT's operating partnership buys the DST property for units, you hold a partnership interest, and Section 1031 covers only real property. Redeeming units or swapping them for REIT shares is generally taxable.

Can I sell my DST interest before the property sells?

Sometimes, but it isn't easy. There's no public market, the sponsor usually has to consent, and secondary buyers usually want a discount. Plan to hold for the full term and possibly longer.

What happens to my DST if I die?

Your interest passes to your heirs or your trust, and the DST keeps running. Under current law, your heirs generally get a stepped-up basis, which can remove the deferred gain. They can then do their own 1031 exchange when the property sells.

Before you act

This guide is for education only. It isn't tax, legal or investment advice. Please confirm every decision with your CPA, attorney and qualified intermediary. DST interests are offered only by private placement memorandum to qualified investors, and you can lose your entire investment.

Sources

• 26 U.S.C. § 1031, Exchange of real property held for productive use or investment (Cornell LII)
• 26 U.S.C. § 721, Nonrecognition of gain or loss on contribution (Cornell LII)
• 26 U.S.C. § 1014, Basis of property acquired from a decedent (Cornell LII)
• 26 U.S.C. § 1411, Net investment income tax (Cornell LII)
• 26 CFR § 1.1031(k)-1, Treatment of deferred exchanges (Cornell LII)
• IRS Revenue Ruling 2004-86
• IRS Fact Sheet FS-2008-18, Like-Kind Exchanges Under IRC Code Section 1031
• IRS, About Form 8824, Like-Kind Exchanges
• IRS Topic No. 409, Capital Gains and Losses
• Investor.gov, Private Placements under Regulation D
• FINRA (NASD) Notice to Members 05-18