DST’S
Here is an alternative investment vehicle that also takes advantage of the tax code allowing for real property investors to receive a tax benefit on capital gains from the sale of various commercial properties. This is different than the 1031 exchange basic we showed above but it is a viable alternative for some investors.
Delaware Statutory Trust (DST)
What is a Delaware Statutory Trust?
A DST is a separate legal entity formed as a trust under Delaware law. If properly structured, the DST will be classified as a grantor trust for federal income tax purposes and, as a result, the purchaser of a beneficial interest in the trust will acquire an undivided interest in the asset(s) held by the DST. An investor can use a beneficial interest in a DST as replacement property in a 1031 tax deferred exchange.
A DST is structured so that each beneficiary (investor) owns a beneficial interest in the trust. The managing Trustee of the DST is either the Sponsor or an affiliate of the Sponsor. The DST holds title to 100% of the interest in the property.
Tax reporting for a DST is done on a Schedule E utilizing property operating information provided by the Sponsor.
The IRS issued the Revenue Ruling 2004-86 that set forth parameters a DST must meet in order to be viewed as a grantor trust and qualify for a viable tax deferring vehicle. If the DST is structured responsibly, the parameters do not prohibit a successful business plan for a property.
The following is a list of the parameters and the procedures generally accepted to comply with these limitations:
The DST may not purchase additional assets other than short-term obligations.