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What is a DST, and How Does it Work? 

At some point in their investment journey, these active owners will progress out of the accumulation and growth phase. They may be approaching retirement and are seeking to reap the benefits of their investments without all the work, focusing more on capital preservation and income. Converting from active to passive ownership is possible by exchanging invested property into a 1031 exchange and using a DST, or Delaware Statutory Trust.  

Delaware Statutory Trust, or DST, investments allow owners of real estate investments to pool their capital. Then, they exchange it for institutional assets with professional management. For example, an investor owns a property worth $500,000. By employing a 1031 exchange, they can convert that ownership to another property worth $500,000. But by employing a DST, they can roll their investment into a property or properties worth much more. Even better, the DST provides a passive ownership structure.  

A Delaware Statutory Trust qualifies as “like-kind” for the purposes of a 1031 exchange. According to IRS Revenue Ruling 2004-86, which went into effect in 2004, owners of real property can exchange their assets, called the relinquished property, for part ownership in real property, called the replacement property.