Recently we published a three-part educational series called “Sharpening Your Portfolio IQ: The New Semester of Alternative Investment Strategies”.  At a recent real estate and CPA conference there were continued concerns and interest about the sequence of events to properly position assets for a Section 1031 tax deferred exchange.

September 27, 2025

By Al DiNicola, AIF®
1031 Tax Deferred Exchange Specialists & DST Advisor
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

Investors are also taking a deeper dive into Delaware Statutory Trust (DSTs). There was a transition from confusion, concern, caution and then confidence in utilizing a §1031 tax deferred exchange with a DST.

It is appropriate to re-engage and review as we enter an energized time of the year. As we enter the fourth quarter of 2025, investors may be repositioning their real estate and investment holdings to make a move prior to year end or getting ready for 2026 (already).

The confusion was shared as to how Delaware Statutory Trusts (DSTs) qualify as replacement property for §1031 tax-deferred exchanges. As a refresher, this is permitted due to IRS Revenue Ruling 2004-86. The ruling in 2004 established permitting fractional ownership in a DST being considered direct ownership of real estate. Partnership interest would not qualify.

Why DSTs Qualify

  1. IRS Guidance
    • Revenue Ruling 2004-86 confirms that a beneficial interest in a properly structured DST represents direct ownership of real estate.
    • Unlike partnerships or LLCs, DST investors are treated as owning an undivided interest in the underlying real property.
  2. Like-Kind Property Requirement
    • §1031 exchanges require the relinquished property and replacement property to be of “like-kind.”
    • DST interests meet this definition since they are tied to actual real estate assets.
  3. Compliance with IRS Restrictions (noncompliance is referenced as the Seven Deadly Sins)
    DST trustees and sponsors must adhere to strict limitations to maintain compliance:
    • No new capital contributions after the offering is closed.
    • No refinancing after the initial loan is placed.
    • No reinvestment of sale proceeds from disposed property.
    • Limited ability to make structural changes, renegotiate leases, or enter new business ventures.
    • Only normal repair, maintenance, and minor non-structural improvements are permitted.

§1031 Exchange Process Using a DST

  1. Sell the relinquished property – proceeds are held by a Qualified Intermediary (QI) to avoid constructive receipt.
  2. Identify replacement property (DSTs) – within 45 days of the sale of the relinquished property.
  3. Close on the DST investment – within a total of 180 days of the sale of the relinquished property.
  4. Ownership via beneficial interest – investor receives pro-rata share of income and appreciation, but no active management responsibilities.

Advantages of Using DSTs in §1031 Exchanges

  • Fast closing, useful for meeting tight IRS deadlines. DSTs are prepackaged and ready to close in a short period of time.
  • Access to institutional-quality real estate (multifamily, industrial, retail, medical office, self-storage, student housing, life science, and even land).
  • Passive income with professional management.
  • Ability to diversify by investing in multiple DSTs with smaller minimums. A $500,000 exchange may be reallocated into several DSTs. There would be added due diligence as well as additional paperwork. This may provide a level of diversification. Diversification does not eliminate risk but seeks to minimize risk.

What to Look for in a Good DST Professor (AKA Advisor)

When searching for an advisor you may approach the selection process by selecting an educational partner. Investors will go through an educational process and should seek an advisor who has specific DST / §1031 exchange experience. They should know the lifecycle, risks, and legal paperwork, sponsor reputations, fees, etc. Advisors who have interfaced with CPAs may also be able to assist since many CPAs may not deal with §1031 exchanges and DSTs on a regular basis.

A real estate broker typically is not licensed appropriately. Look for Registered Investment Advisors (RIAs), broker‐dealers, or financial professionals who can legally sell DST offerings. DST sponsors typically distribute their offerings through these channels.

An advisor should be selected who has a track record for a number of transactions completed or deals done, who is engaged in the selection process and who understands DSTs needed to balance debt requirements as well as potential diversification. Just as important is being transparent regarding fees and risks.  Advisors who operate in a Fiduciary capacity or with aligned incentives is an advantage. Make sure there are no conflicts of interest (e.g. the advisor is also sponsoring the DST or gets paid extra for promoting certain ones).

Communication actually is a two-way situation. The advisor needs to be responsive, communicative, and educational.  Advisors should take time to understand your goals, walk you through the pros/cons, help with due diligence. The investor needs to understand time constraints, especially with the 45-day identification period and returning documentation. This is especially important when investors contact us well within their 45-day identification period.

Advisors who adopt an educational attitude first and foremost may provide the most effective and efficient solution for the investor. Investors who begin their educational process with the right advisors will be in the best financial position as well as meeting timing constraints if utilizing a 1031 exchange.

As always contact us for more information and a complimentary consultation.

NAMCOA® is a SEC registered investment advisory firm that provides comprehensive portfolio management, financial planning, and fiduciary decision-making services on behalf of retirement plan sponsors. Our Difference is summarized by our fiduciary approach which enables us to better meet portfolio and retirement plan objectives, resulting in stronger risk adjusted returns for investors and peace of mind for Clients. We also focus on alternative real estate investment. Many real estate investors are seeking tax deferred solutions utilizing §1031 exchanges or Opportunity Zones.

Alternative investments and DSTs are not for all investors.  The acquisition of a certain alternative investments including DSTs is for accredited investors only.  Contact your investment adviser for additional details on how a DST may be a solution to your §1031 Exchange and suited for your investment future. For more information on how to properly set up an IRC §1031Tax Deferred Exchange or if you are an accredited investor and would like additional information on a DST contact Al DiNicola at 239-691-8098 or email adinicola@namcoa.com.

This is not an offer to purchase or solicitation to purchase any security, as such be made only through an offering memorandum or prospectus.  Investing in securities, real estate, or any investment, whether public or private, involves risk, including but not limited to the potential of losing some or all of your investment dollars when you invest in securities. You should review any planned financial transactions that may have tax or legal implications with your personal tax or legal advisor.   NAMCOA, LLC is a Registered Investment Advisor, regulated by SEC (Securities and Exchange Commission). Our corporate office is located at 999 Vanderbilt Beach Road, Suite 200, Naples Florida 34108. Securities Offered through MSC-BD, LLC, Member of FINRA/SIPC. 5 Centerpointe Drive, Ste. 400 Lake Oswego, OR, 97035MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.