Sell the property. Keep the wealth.
Defer the tax.
A Delaware Statutory Trust lets you exchange out of hands-on rental
property and into institutional-grade real estate—deferring capital
gains taxes under IRC §1031 while turning landlord work into passive
income.
Sell the property. Keep the wealth.
Defer the tax.
A Delaware Statutory Trust lets you exchange out of hands-on rental property and into institutional-grade real estate — deferring capital gains taxes under IRC §1031 while turning landlord work into passive income. Keith Powell, CFP® · CDFA®, guides accredited investors through every step.
What Is a Delaware Statutory Trust?
A DST is a legal structure that allows multiple investors to own fractional interests in large, professionally managed real estate — the kind of property that’s normally out of reach for individual buyers.
Think apartment communities, medical office buildings, industrial distribution centers, self-storage facilities, and net-lease properties occupied by national credit tenants. A sponsor firm acquires the property, structures the trust, arranges any financing, and manages the asset. Investors purchase beneficial interests in the trust and receive their proportionate share of any income the property generates.
What makes the DST structure so important for real estate sellers is a 2004 IRS ruling: Revenue Ruling 2004-86 established that a properly structured DST interest qualifies as like-kind replacement property in a §1031 exchange. That means you can sell a rental house, a duplex, raw land, or a commercial building — and roll the full proceeds into a DST without triggering capital gains tax on the sale.
And despite the name, the real estate doesn’t have to be in Delaware. The name refers only to the trust law under which the entity is formed — the underlying properties can be located anywhere in the country, including right here in Texas.
Why this matters in Texas
Texas property values have climbed dramatically over the past two decades. Landlords who bought Austin-area rentals in the 2000s are often sitting on six-figure taxable gains — plus depreciation recapture — if they sell outright.
A 1031 exchange into a DST defers the entire tax bill and replaces tenant calls with a monthly statement.
Why Investors Exchange Into DSTs
Most of the investors Keith works with aren’t looking for their next project. They’re looking for an exit — from active management, from concentration in one property, or from a tax bill that would consume decades of appreciation.
✔ Full tax deferral on sale. Capital gains tax and depreciation recapture are deferred under §1031 — the entire sale proceeds keep working for you instead of a third or more going to the IRS.
✔ Truly passive ownership. No tenants, no toilets, no trash. The sponsor handles management, maintenance, leasing, and eventual sale. You receive statements and distributions, not 2 a.m. phone calls.
✔ Institutional-grade real estate. Access to property classes — Class A multifamily, medical, industrial — that individual investors rarely reach on their own.
✔ Diversification. Exchange proceeds can be spread across multiple DSTs — different property types, sponsors, and geographic markets — instead of concentrated in a single building on a single street.
✔ Estate planning advantages. Under current law, heirs generally receive a step-up in basis at death under §1014 — which can permanently eliminate the deferred gain.
✔ A path to liquidity later. Some programs offer an eventual §721 UPREIT exchange into a REIT’s operating partnership — converting an illiquid property interest into units of a larger, diversified portfolio.
The “tired landlord” profile. If you’ve spent years managing rentals and the phrase “passive income” has started to feel like a joke, you’re exactly who this strategy was built for. The same is true for sellers of business real estate, farm and ranch land, and inherited investment property.
How a 1031 Exchange Into a DST Actually Works
1
Plan before you sell
The single most important step. Talking with Keith before listing lets you structure the sale correctly, engage a Qualified Intermediary, and preview DST options — so the 45-day clock starts with a plan already in place.
2
Close through a Qualified Intermediary
Sale proceeds must go directly to a Qualified Intermediary (QI) — never to you. If you touch the money, the exchange fails and the full gain becomes taxable. The QI holds the funds until the replacement closes.
3
Identify within 45 days
You have 45 calendar days from closing to identify replacement property in writing. Many investors name specific DSTs on their identification list — either as their primary choice or as insurance behind a traditional property purchase.
4
Close within 180 days
The replacement purchase must be complete within 180 days of the original sale. Because DST interests typically close in days — not the weeks a traditional purchase takes — they can rescue exchanges running short on time.
5
Collect income, plan the next move
During the hold period — typically five to ten years — you receive your share of any distributions. When the sponsor sells, you can exchange again, cash out, or in some programs move into a REIT via §721.
DST Ownership vs. Direct Ownership
Neither is universally better — they solve different problems. The right answer depends on how involved you want to be, how much control you need, and what stage of investing life you’re in.
| Direct Ownership | DST Interest | |
|---|---|---|
| Management | You (or your property manager) | Professional sponsor — fully passive |
| Property class | What you can buy alone | Institutional-grade assets |
| Diversification | Usually one property, one market | Can spread across multiple DSTs and markets |
| Control | Full control of all decisions | No control — sponsor makes all decisions |
| Liquidity | Can sell when you choose | Illiquid — typically held 5–10 years |
| 1031 eligible | Yes | Yes (Rev. Rul. 2004-86) |
| Closing speed | Weeks to months | Often a matter of days |
| Investor requirement | Anyone | Accredited investors only |
Who DSTs Are For — and Who They Aren't
DSTs are private placements offered under SEC Regulation D. They’re powerful tools for the right investor and the wrong fit for others. Keith will tell you plainly which one you are.
A DST may fit if you are…
- An accredited investor — generally $1 million+ net worth excluding your primary residence, or income above $200,000 ($300,000 jointly) in each of the last two years
- Selling appreciated investment real estate and facing a significant capital gains and depreciation-recapture bill
- Ready to exit active management in favor of passive income
- Comfortable committing the capital for a multi-year hold with no access in between
- Thinking about estate planning and the basis step-up your heirs could receive
A DST is likely the wrong fit if you…
- May need access to this capital during the hold period — DST interests are illiquid and there is no public market to sell into
- Want control over decisions about the property — investors have none
- Are counting on a guaranteed income stream — distributions are not guaranteed and can be reduced or suspended
- Do not meet the accredited investor standard
Why Investors Work With Keith Powell
DSTs sit at the intersection of real estate, tax strategy, securities regulation, and retirement planning. Keith has spent more than 30 years working at exactly that intersection.
Credentialed, Verifiable
Keith holds the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation and is a Certified Divorce Financial Analyst® (CDFA®). His full regulatory history is publicly available on FINRA BrokerCheck.
Planning First, Product Second
The DST decision starts with your full financial picture — income needs, estate goals, tax exposure, and liquidity — not with whichever offering happens to be open this month.
Sponsor & Offering Diligence
Not all DST sponsors are equal. Keith reviews sponsor track records, fee structures, leverage, and property fundamentals — and walks through the Private Placement Memorandum with you, page by page if needed.
Local, Independent, Accessible
Austin Wealth Specialists is an independent firm on Jollyville Road in northwest Austin — not a call center. Clients meet with Keith directly, in person or by phone, across Texas, Arizona, Florida, and Mississippi.
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A note for divorcing property owners
Through his sister firm, Austin Divorce Planners, Keith regularly works with spouses dividing rental property in divorce. When a rental must be sold as part of a settlement, a 1031 exchange into a DST can let each spouse defer taxes on their share and convert it into passive income — often a far better outcome than a taxable sale split two ways.
The Risks, Stated Plainly
Any advisor who leads with returns and buries the risks is doing you a disservice. Here is what every DST investor must understand and accept before investing a dollar.
- Illiquidity. There is no public market for DST interests. Plan to hold until the sponsor sells the property — typically five to ten years, and possibly longer.
- Distributions are not guaranteed. Income depends on property performance. Distributions can be reduced or suspended, and past performance of any sponsor or property type does not predict future results.
- Loss of principal is possible. Real estate values fluctuate. Investors can lose some or all of their investment.
- No investor control. The trust structure that makes DSTs 1031-eligible also prohibits investor involvement. The sponsor makes every decision, including when to sell.
- Fees and expenses. DST offerings carry upfront and ongoing fees that reduce returns. Every fee is disclosed in the offering’s Private Placement Memorandum — and reviewing them together is part of Keith’s process.
- Financing risk. Many DSTs carry property-level debt. Leverage can amplify both returns and losses, and loan covenants restrict the trust’s flexibility.
- Tax law can change. The rules governing §1031 exchanges, §1014 basis step-up, and DST structures are creatures of current law. Congress can modify them.
How to weigh all this
The question is never “is a DST good or bad?” It’s whether this specific offering, from this sponsor, with these fees and this leverage, fits your specific situation better than the alternatives — including simply paying the tax. That’s a planning question, and it’s exactly what a fiduciary conversation with Keith is for.
The Risks, Stated Plainly
A DST is a trust that lets accredited investors own fractional, completely passive interests in large institutional real estate — and under IRS Revenue Ruling 2004-86, those interests qualify as replacement property in a 1031 exchange.
No. The name refers to the Delaware trust law under which the entity is formed. The properties themselves can be anywhere in the United States — many DST portfolios include Texas assets.
Generally, individuals with a net worth above $1 million excluding their primary residence, or income above $200,000 ($300,000 with a spouse) in each of the past two years with the expectation of the same going forward. Certain professional license holders also qualify. Keith can help you confirm your status.
Minimums vary by offering and are set by each sponsor — they’re typically substantially lower than buying an institutional property outright, which is part of what makes diversification across several DSTs possible. Current minimums are listed in each offering’s documents.
DSTs are illiquid — there is no public market for the interests. Typical hold periods run roughly five to ten years, until the sponsor sells the property. Only invest capital you will not need during that window.
45 calendar days from your sale closing to identify replacement property in writing, and 180 calendar days to close on it. Both clocks run at the same time, and the IRS grants no extensions.
Yes — and it’s one of the smartest uses of the structure. If your primary replacement purchase falls through late in the exchange window, a DST can usually close within days and save the entire exchange from becoming taxable.
When the sponsor sells the underlying property, you generally have three paths: complete another 1031 exchange and continue deferring, take the cash and pay the deferred taxes, or — in programs that offer it — exchange into a REIT’s operating partnership under IRC §721.
Potentially, at death. Under current law, heirs generally receive a step-up in basis under IRC §1014, which can wipe out the deferred capital gain entirely. This is why some investors describe the strategy as “swap ’til you drop.” Tax law can change — coordinate with your tax advisor.
Often, yes. When a settlement requires selling investment property, each spouse may be able to exchange their share into separate DST interests — deferring taxes and converting a contested asset into independent passive income. Keith advises on exactly these situations through Austin Divorce Planners.