NFN Exchange

Advantages of a DST

Capital Gains Tax Savings

DSTs qualify as a like-kind property with a 1031 exchange. This allows real estate investors to defer paying capital gains taxes on the sale of an investment property, often resulting in significant savings. In some states, capital gains taxes can be more than 35%, including federal capital gains tax, state capital gains tax, depreciation recapture tax and net investment income tax.

Turnkey Offerings

The property has already been acquired, reducing the risk of missing IRS deadlines for 1031 exchanges. The DST Sponsor has performed due diligence, gathered pertinent documents such as property inspections, environmental reports, rent rolls and financial statements, secured financing, and installed a third-party property management team.

Non-Recourse Financing

Investors are not required to sign loan documents or qualify for a loan. Some investors have debt that must be matched in their exchange. Many DSTs are structured with debt in place. Access to non-recourse debt is a major benefit of DST ownership, one that serves to enhance potential cash flow and appreciation.

Eliminate Tax For Estate Beneficiaries

DSTs also offer estate planning benefits. Through a step-up in basis, beneficiaries can defer capital gains, depreciation recapture and net investment income tax upon the death of an owner. The estate can also divide a DST investment seamlessly among beneficiaries, something that is generally challenging for traditional, directly-owned fee simple real estate assets.

Risk Diversification

DSTs have a comparatively low minimum investment requirement making it easy to diversify across multiple assets to help mitigate risk. Under the IRS’s property identification rules for 1031 exchanges, investors can reinvest the proceeds from an investment property sale into multiple DSTs, creating immediate investment diversification among different DST property types and locations.