Top 5 Requirements for a Successful 1031 Exchange with Delaware Statutory Trusts
A 1031 exchange is one of the most powerful tools available to real estate investors. It allows you to defer capital gains taxes, preserve equity, and reposition your portfolio, but only if the exchange is executed correctly. The IRS rules are strict, and even a single misstep can jeopardize tax deferral.
Below are the five essential requirements for a successful 1031 exchange, and how Delaware Statutory Trusts (DSTs) can make the process smoother, simpler, and more reliable.
1. The Property Must Be Held for Investment or Business Use
To qualify for a 1031 exchange, both the property you sell (relinquished property) and the property you acquire (replacement property) must be used for business or investment purposes.
Qualified properties include:
Rental homes or apartments
Commercial buildings
Industrial property
Triple-net lease (NNN) assets
Agricultural or timberland
Not qualified:
Primary residences
Vacation homes used for personal enjoyment
Fix-and-flip properties held for resale
Why DSTs Work
DSTs hold IRS-approved investment property, typically large commercial or industrial assets, making them ideal replacement properties for 1031 exchangers who want passive income and tax deferral.
2. A Qualified Intermediary (QI) Must Hold the Proceeds
You cannot receive or control the proceeds from your sale.
A Qualified Intermediary must hold all funds and facilitate the purchase of your replacement property.
If you touch the money, even accidentally, the exchange becomes invalid.
DST Advantage
DSTs streamline the process.
Your QI transfers funds directly into the DST investment, reducing coordination risk and keeping the exchange compliant from start to finish.
3. You Must Meet the 45-Day and 180-Day Deadlines
Timing is one of the most stressful parts of a 1031 exchange.
Strict deadlines include:
45 days to identify replacement property
180 days to close on one or more identified properties
Missing either deadline cancels your tax deferral.
How DSTs Help
DSTs are turn-key, pre-packaged investments with:
immediate availability
no negotiation delays
pre-completed due diligence
This eliminates the frantic scramble to find or close a deal within IRS timeframes.
4. You Must Reinvest All Proceeds into Equal or Greater Value
To defer 100% of your capital gains taxes:
The replacement property must be equal or greater in value than the property sold.
All net proceeds must be reinvested.
Any debt paid off must be replaced with new debt or additional cash.
DST Advantage
DSTs allow you to easily invest the exact amount needed to satisfy IRS value and reinvestment rules, without taking on new debt unless desired.
Fractional ownership makes “filling the gap” simple and precise.
5. Title and Taxpayer Must Match
The taxpayer who sells the relinquished property must also acquire the replacement property.
Examples:
An LLC cannot sell while an individual buys.
A married couple cannot identify as a single taxpayer unless title was originally held jointly.
DST Benefit
DST structures accept ownership from:
individuals
married couples
single-member LLCs
multi-member entities
trusts
This flexibility makes compliance straightforward and reduces legal complexity.
Bonus: DSTs Simplify Compliance and Expand Your Benefits
A 1031 exchange can be complex, but DSTs make it easier.
At Medalist Holdings (NASDAQ: MDRR), our DST offerings are built to help investors achieve:
Turnkey 1031 Compliance
Ready-to-invest structures that align with IRS rules.
Passive Income
Distributions from long-term, net-lease properties, without management responsibilities.
Institutional-Quality Real Estate Access
Backed by high-credit tenants and long-term leases.
Diversification
Fractional ownership across high-quality assets.
Estate Planning Advantages
DST interests are easy to transfer, easy to divide, and require no active management from heirs.
Optional 721 UPREIT Pathway
For investors seeking long-term growth and tax-efficient liquidity options, DST interests may qualify for future 721 UPREIT contributions (subject to timing and structure), offering a bridge into a diversified REIT portfolio without triggering taxes.
DSTs allow you to complete your exchange with confidence, reduce risk, and enjoy a smoother, more predictable transition.
Plan Your 1031 Exchange With Medalist
A properly executed 1031 exchange can help you:
preserve wealth
increase passive income
eliminate management burdens
improve diversification
secure long-term family stability
Medalist DSTs make the process cleaner and more predictable, giving you a reliable path to grow and protect your real estate legacy.
Ready to explore your DST options?
Our team is here to help every step of the way.
