.png)
Frequently Asked Questions
Common questions about 1031 Exchange and DST
1031 Exchange
The core rules and timelines behind a tax-deferred exchange.
A 1031 exchange, named for Section 1031 of the Internal Revenue Code, lets an investor sell an investment or business property and defer the capital gains tax by reinvesting the proceeds into a like-kind replacement property. It defers the tax rather than eliminating it. The gain carries forward and may become due on a future sale.
Once the relinquished property closes, you have 45 calendar days to formally identify potential replacement properties and 180 calendar days to close on one of them. Both deadlines run concurrently and generally cannot be extended. Missing either can disqualify the exchange and make the deferred gain immediately taxable.
A Qualified Intermediary is an independent third party who holds your exchange proceeds in escrow and facilitates the transfer to your replacement property. Under IRS rules, an investor can never take actual or constructive receipt of the funds, as doing so disqualifies the exchange. A QI must therefore be engaged before the relinquished property closes.
For real estate, the IRS defines "like-kind" broadly: almost any property held for investment or business use can be exchanged for any other, regardless of asset type or location. That includes exchanging an actively managed rental property for a passive structure like a DST.
Investors nearing retirement, working against a tight exchange timeline, or simply ready to step away from hands-on property management often use a DST to keep deferring capital gains tax while a professional sponsor handles leasing, maintenance, and day-to-day asset management.
Delaware Statutory Trusts (DSTs)
How DSTs work as a passive, professionally managed replacement property.
A Delaware Statutory Trust (DST) is a separate legal entity formed under Delaware law that holds title to real estate on behalf of multiple investors, each of whom owns a beneficial interest rather than a direct deed. Under IRS Revenue Ruling 2004-86, a properly structured DST interest is treated as real property, which is why it qualifies as replacement property in a 1031 exchange.
With direct ownership, you handle leasing, financing, and maintenance yourself. In a DST, a professional sponsor and trustee manage the asset on your behalf. You hold a passive interest with no management responsibilities, though also no direct control over major property decisions.
DST portfolios are typically built around institutional-quality, single-tenant net lease and other commercial real estate, occupied under long-term leases by nationally recognized, credit-rated tenants across sectors like pharmacy, logistics, and retail. This diversification is designed to target investors' goals for income, appreciation, or both.
Not easily. DST interests are illiquid private placement securities with no established secondary market, so investors should plan to hold for the full offering term, typically a multi-year period set by the sponsor's business plan.
When the sponsor sells the property, net proceeds are distributed to investors based on their beneficial interest. From there, you can either complete another 1031 exchange to keep deferring taxes, or accept the distribution and recognize the deferred gain that year.
Eligibility & Process
Who can invest, and what to expect once you get started.
These offerings are private placements, generally limited to accredited investors as defined under SEC Regulation D (based on income, net worth, or professional licensing), unless a specific offering states otherwise. Confirm your status with a financial advisor, CPA, or attorney before applying.
It typically starts with a consultation to understand your exchange timeline and goals, followed by identifying suitable DST opportunities, coordinating with your Qualified Intermediary, and reviewing the offering's Private Placement Memorandum (PPM). No investment decision should be made until the PPM has been read in full. See Our Process.
Not required, but recommended. These transactions carry tax and legal implications specific to your situation, and we're glad to coordinate directly with your advisor, CPA, attorney, or Qualified Intermediary.
Minimums vary by offering and are disclosed in each Private Placement Memorandum. Because DST interests allow fractional ownership, proceeds can often be split across more than one property to diversify. Contact our team for current minimums.
Risks & Considerations
What to weigh before committing capital to any offering.
As with any real estate investment, key risks include: no guarantee any strategy achieves its objectives; property values that can decline; an unfavorable tax ruling that could cancel deferral treatment; foreclosure risk on financed properties; illiquidity, since no secondary market exists for DST interests; possible reduction in cash flow distributions; and fees that may outweigh the tax benefits. A complete risk discussion is provided in each offering's Private Placement Memorandum.
No. Past performance is no guarantee of future results, and any "targeted" goals referenced for an offering do not constitute a promise of performance. All investments carry the risk of loss of some or all principal.
Missing either deadline generally disqualifies the exchange, making the capital gain taxable that year. This is one reason investors turn to DSTs: as pre-packaged offerings, they can often close faster than a directly negotiated purchase.
Securities related to Keystone 1031 Net Leased Portfolio offerings are offered through Emerson Equity LLC, Member FINRA/SIPC, only in states where it is registered. You can review its background on FINRA's BrokerCheck. Securities related to the Keystone 1031 Orlando office are offered separately through American Alternative Capital, LLC, Member FINRA. Neither broker-dealer is affiliated with the other entities identified in these communications.
Yes, always. Nothing here constitutes tax, legal, or investment advice. Offers are only made through the confidential PPM for the applicable offering.
Key Terms
Plain-language definitions of terms used throughout this page.
1031 Exchange
A 1031 exchange is a transaction, authorized under Section 1031 of the Internal Revenue Code, that allows an investor to sell a property held for investment or business use and defer the capital gains tax owed on that sale by reinvesting the proceeds into a like-kind replacement property.
The exchange must be facilitated by a Qualified Intermediary and completed within strict IRS timelines: 45 days to identify a replacement property and 180 days to close. The tax is deferred, not eliminated; it is carried forward into the replacement property's cost basis and may become due upon a future taxable sale.
Delaware Statutory Trust (DST)
A Delaware Statutory Trust is a separate legal entity, formed under Delaware law, that holds title to one or more real estate assets on behalf of multiple investors. Rather than taking a direct deed to the property, each investor purchases a beneficial interest in the trust.
Under IRS Revenue Ruling 2004-86, a properly structured DST interest is treated as direct ownership of real property for federal tax purposes, which is what allows a DST to qualify as replacement property in a 1031 exchange. Investors in a DST are passive; a professional sponsor and trustee handle all property-level management and decision-making.
Qualified Intermediary (QI)
A Qualified Intermediary is an independent third party who facilitates a 1031 exchange by holding the proceeds from the sale of the relinquished property in escrow, preparing the required exchange documents, and transferring funds to acquire the replacement property.
An investor is never permitted to take actual or constructive receipt of exchange funds, as doing so disqualifies the exchange. A QI must be engaged before the relinquished property closes, as one cannot be appointed retroactively once the sale has occurred.
Like-Kind Property
Like-kind property refers to any real property held for investment or business use that can be exchanged for other real property also held for investment or business use. For real estate, the IRS interprets this term broadly: the asset type, class, and use of the relinquished and replacement properties do not need to match, provided both are held for qualifying purposes rather than personal use.
Accredited Investor
An accredited investor is an individual or entity that meets income, net worth, or professional licensing thresholds defined under SEC Regulation D, qualifying them to invest in unregistered private placement offerings such as DSTs. Because these offerings are not registered with the SEC, eligibility to invest is generally limited to accredited investors unless a specific offering states otherwise.
Capital Gains Deferral
Capital gains deferral is the postponement of tax owed on the appreciation of an investment property. Instead of recognizing and paying tax on the gain at the time of sale, an investor completing a valid 1031 exchange rolls that gain into a new replacement property, carrying the deferred liability forward until a future sale is made without a subsequent exchange.
Private Placement Memorandum (PPM)
A Private Placement Memorandum, or PPM, is the confidential legal document through which a DST or other private securities offering may be made available to investors. It discloses the offering's terms, structure, fees, risk factors, and minimum investment requirements.
Investment offerings and investment decisions may only be made on the basis of a PPM. No marketing material, website, or summary document may substitute for it, and investors must read the PPM in full before committing capital.
Sponsor
A sponsor is the company responsible for identifying, acquiring, financing, and managing the real estate held within a DST on behalf of its investors, and for eventually selling the property at the end of the hold period. The sponsor's underwriting, property selection, and management decisions directly affect the DST's performance, making the sponsor's track record and expertise a key consideration for investors.
Boot
Boot refers to any cash or non-like-kind property an investor receives as part of a 1031 exchange, for example sale proceeds not fully reinvested, or a reduction in mortgage debt on the replacement property that is not offset by other means. Boot is taxable in the year it is received, even when the remainder of the exchange qualifies for deferral, which is why investors generally aim to reinvest the full net sale proceeds and match or exceed their prior debt level on the replacement property.
Schedule a Consultation
Have a question about our process, our properties, or how a 1031 exchange or DST could fit your portfolio? Our team is here to help.
BROWSE OUR E-BOOKS
Explore Our Library
What you need to know about real estate investment strategies — from 1031 exchanges to DSTs — in one place.
.png)