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What are the key benefits of DSTs

Some key benefits to investors include:   

Tax Deferral

DST investors receive the same tax benefits as if they had completed their own 1031 exchange. That means they can fully defer all taxes due on the sale of the relinquished property. Federal capital gains taxes, state income taxes and depreciation recapture are all deferred. As well, the basis from the original property is rolled over.  

Passive Ownership

Most real estate investors utilize a DST to eliminate active management—the three Ts of toilets, tenants and trash. The DST transfers all management responsibility to the sponsor and gives the client all the benefits of ownership. 

Ability to exchange “up”

Investors acquire a fractional interest in a trust that manages a larger or institutional-quality asset. It’s not simply a “like-kind” exchange of a similar property.  

Professional management

The replacement property is managed through the DST. So, investors no longer need to directly manage a property and can spend more time doing what they love. 

Passive income and simplified estate planning

Landlords exchange day-to-day property management for the benefits of a passive, monthly income stream. And beneficiaries inherit interest in a security, rather than a property, through an estate or trust. If they decide to liquidate the real estate, there are minimal tax implications. 

Matching debt and equity

Investors must replace the full value of relinquished real estate. It can be difficult to find assets that directly match the proceeds and to get financing on the new property. A DST is typically structured with non-recourse debt. So, the investor assumes the leverage and can invest as much equity as they need for the exchange.