Delaware Statutory Trusts (DSTs) allow owners of real estate to sell their investment real estate and potentially defer capital gains taxes. DSTs are derived from Delaware Statutory law as a separate legal entity and formed as private governing agreements for the purposes of managing, administering, investing, and/or operating real, tangible, and intangible property; or business or professional activities for profit that are carried on by one or more individuals who act as trustees for the benefit of a party who is entitled to a beneficial interest in the trust property.
Though Delaware Statutory Trusts are not new, in 2004 the IRS came out with an official Revenue Ruling detailing how a DST could be structured in such a way that it would qualify as a property replacement vehicle for 1031 Exchanges. Well known to real estate investors, a 1031 like-kind exchange allows you to defer the capital gains tax on the sale of investment property by reinvesting the proceeds into a similar qualifying property.
As a result, DSTs have become an investment vehicle for investors who want the benefits of owning real estate without becoming a “landlord”, as well as current real estate investors who no longer want the responsibilities of being a landlord.
A property is identified and acquired under a DST by a sponsoring real estate investment firm. The same firm, also acting in the capacity as the master tenant, opens up the trust for potential investors to purchase a beneficial interest. In this realm an accredited investor would have an opportunity to own a beneficial interest in a property that would normally be out of reach to them from an investment standpoint. Additionally, they would also benefit from a professionally managed property without any of the associated landlord responsibilities.
Receive passive income from real estate minus the work
Own shares of major commercial real estate properties that currently produce income
Cash out the equity on your highly appreciated property into an income producing property AND potentially defer your capital gains with a 1031 exchange
Get the benefits of real estate ownership and income without the stress and hassles of property management
Create an easily dividable asset for your heirs
Do you own highly appreciated investment property?
Are you interested in investing in income producing properties?
Are you a current landlord tired of the responsibilities and dealing with the Terrible Ts?
Are you looking for an easily divisible asset to leave your heirs?
Did you just sell your highly appreciated investment property and can’t find a like-kind replacement?
What would be a reason not to do a DST?
*To be an accredited investor, an individual must have had earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years and “reasonably expects the same for the current year,” according to the SEC. Or, the individual must have a net worth of more than $1 million, either alone or together with a spouse. With the passage of the Dodd-Frank Act, this now excludes a primary residence as being eligible as part of an investor’s net worth (investors who had existing accredited investments but who now fail the net-worth test without their residence being valued were grandfathered).
The information, suggestions, and opinions included in this material is for informational purposes only and cannot be relied upon for any financial, legal, tax, accounting or insurance purposes. Cash Financial will not be held responsible for any detrimental reliance you place on this information. Investments in a DST involve certain risks, including the potential lack of return, loss of principal and tax consequences. Investment Advisory Services offered through AlphaStar Capital Management, LLC, a Registered Investment Adviser. AlphaStar Capital Management, LLC and Cash Financial LLC are independent entities. The DST sponsor determines whether to accept any individual’s subscription documents. Portfolio management services provided by a third-party sub-advisor.