Real estate investment in New York comes in many forms. Some options need a lot of hands-on management. Others don’t. Each path has tax consequences. Many investors look for ways to cut the bill, and a 1031 can help with deferring taxable gains using 1031 exchanges. You also need to be clear on how the holding period works, since timing can shape your strategy and eligibility.
If you want straight answers and a plan that fits your goals, speak with an experienced New York City 1031 exchange lawyer. Sishodia PLLC can help you with tax considerations, 1031 exchanges, contract negotiations, due diligence, and compliance. You can get plain talk, prompt updates, and practical guidance at every step. Contact us at (833) 616-4646 for personalized solutions tailored to your specific needs and goals.
What is a 1031 Exchange?
A 1031 exchange is a way for you to swap one investment or business property for another and put off paying capital gains tax. When you use Section 1031 of the Internal Revenue Code, you can defer the gain if you sell real property and reinvest in other like-kind real property. Since the Tax Cuts and Jobs Act, this applies only to real estate. Use for transactions involving personal or intangible property is not applicable.
You have 45 days from the sale to identify your possible replacement properties. You then have to receive the new property by the earlier of 180 days after the sale or the due date of your tax return for that year, including extensions. Miss a deadline, and the deferral can disappear.
There is no set limit on how many exchanges you can do. If each one follows the rules, you can keep rolling your gains forward from one property to the next.
The rules can feel strict. That is why many investors use a Delaware Statutory Trust, or DST, to complete a 1031 exchange. A DST lets you buy a fractional interest in real estate that qualifies as like-kind property. It can help you hit the timelines and match your reinvestment amount, especially if you want truly hands-off ownership.
Understanding Delaware Statutory Trusts (DSTs)
A Delaware Statutory Trust, or DST, is a trust you form under Delaware law (Del. Code tit. 12, ch. 38). Some states have business trust laws, but the term ‘Delaware Statutory Trust‘ means a Delaware entity. DSTs are a popular way to hold real estate with other investors. You will also see them used in §1031 exchanges.
In Revenue Ruling 2004-86, the IRS said that when a DST is structured the right way and holds rental real estate, the DST is treated as a trust for federal tax purposes. Your beneficial interest is treated like an undivided fractional share of the actual property. That matters for your §1031 exchange. If you exchange into a qualifying DST interest, it can meet the like-kind requirement under §1031, as long as you follow the other rules.
What Is a DST in Real Estate?
A Delaware Statutory Trust (DST) is a way for multiple investors to collectively own real estate. Each investor owns a piece of the entire property, sharing in the profits and responsibilities without managing the property directly.
The creation of a DST is handled by a real estate company, known as a DST sponsor. This sponsor is responsible for selecting and buying the real estate properties that will be part of the trust. Once the properties are acquired, they are managed by the sponsor, allowing investors to benefit from ownership without the hassles of property management.
This investment structure is particularly appealing for those looking to invest in real estate collectively, offering a more passive approach while still participating in the potential financial benefits.
DSTs vs. Other 1031 Replacement Options (TICs, Direct Ownership)
Delaware Statutory Trusts let you exchange into an institutional property with other investors while keeping your 1031 tax deferral. You buy beneficial interests, not a deed. Investment minimums are commonly around $100,000, though some offerings set lower minimums depending on the sponsor and broker-dealer. You give up control, but you gain speed, diversification, and a single set of closing documents that can fit tight 45 and 180-day timelines.
Tenancy-in-Common (TIC) structures give you a deeded fractional interest. Minimums tend to be higher, commonly $250,000 or more. You keep more control, but IRS Rev. Proc. 2002-22 requires unanimous approval of co-owners for major actions such as sale, leasing, or modifying blanket debt, which can slow decisions and coordination. Financing can be tougher because lenders underwrite multiple co-owners and may require carve-outs. You or a manager still handles operations.
Direct ownership puts you fully in charge. That means full control over leasing, capital projects, and exit timing, along with the workload, liability, and loan guarantees. Commercial assets can deliver scale and triple net leases, but vacancies can be lumpy. Residential is familiar and liquid, yet management is hands-on and turnover is frequent. Agriculture brings land appreciation potential, but there are seasonal and commodity risks. Oil and gas-related real property interests can be specialized and cyclical, and eligibility for 1031 treatment depends on the exact rights conveyed. This is where precise structuring matters.
A New York City 1031 attorney can review DST offerings and TIC agreements, flag financing and control terms, confirm like-kind eligibility for specialized assets, coordinate with your qualified intermediary, and keep your exchange documents clean and timely.
1031 Exchange for Foreign Property
The rules governing international §1031 exchanges distinguish between domestic and foreign real estate. Here’s a summary:
- Exchanges within the United States: A property located in the United States can be exchanged for another property within the U.S.
- Exchanges between Foreign Countries: Real property located outside the U.S. is considered “like-kind” to other real property also located outside the U.S. This means a property in one foreign country can be exchanged for a property in any other foreign country, assuming all other §1031 rules are met.
- Exchanges between the U.S. and Foreign Countries: For §1031 purposes, U.S. real property is not like-kind to real property located outside the United States. Therefore, you cannot exchange a U.S. property for a foreign property, or vice versa.
Investors can use a 1031 exchange to defer capital gains tax on the sale of real estate in a foreign country. This choice, however, introduces additional considerations for investors who already own foreign properties. In addition to the standard considerations for a 1031 exchange, such investors need to navigate additional challenges, including tax obligations in the foreign country and the process of converting currency from USD to the local currency. Furthermore, when conducting a 1031 exchange in an international context, the replacement property must also be situated in a foreign country. Hence, careful attention must be given to ensuring compliance with tax laws and regulations in both the investor’s home country and the foreign country involved in the exchange.
To receive proper guidance on structuring a 1031 exchange and navigating the specific rules and requirements that apply to your situation, it is important to consult with a qualified New York City 1031 lawyer. Schedule a consultation with Sishodia PLLC today for assistance.
| Exchange | Like-Kind Treatment | Explanation |
|---|---|---|
| Exchanges within the United States | Allowed | A property located in the United States can be exchanged for another property within the U.S. |
| Exchanges between Foreign Countries | Allowed | Real property located outside the U.S. is like-kind to other real property also outside the U.S. |
| Exchanges between the U.S. and Foreign Countries | Not Allowed | U.S. real property is not like-kind to foreign real property, so they cannot be exchanged. |
Benefits of Delaware Statutory Trusts
Key potential benefits of DSTs include the ability to defer capital gains and depreciation recapture using a §1031 exchange. If an investor dies while holding the replacement property, heirs generally receive a stepped-up basis under IRC §1014, which can eliminate the previously deferred gain.
DSTs are also a popular passive real estate investment offering ownership in institutional-quality properties with minimal landlord responsibilities. Delaware Statutory Trusts have many advantages or benefits, including 1031 Exchange replacement properties. These advantages or benefits include:
- Tax deferral of capital gains and depreciation recapture under §1031.
- Potential income distributions from underlying leases (not guaranteed).
- Access to institutional-grade real estate with passive day-to-day management.
- Diversification by allocating across multiple DST offerings.
- Estate step-up in basis at death under IRC §1014, which can eliminate previously deferred gain for heirs.
- Pre-acquired DST interests often close quickly (frequently within a few business days), helping investors meet 45/180-day exchange deadlines, but this reduces, not eliminates, exchange-failure risk.
Disadvantages of a 1031 Exchange Delaware Statutory Trust
As with any real-estate backed security, DST interests involve risks, including possible loss of principal, illiquidity (limited or no secondary market), limited investor control, tenant/market performance risk, and interest-rate risk over multi-year holds. Distributions are not guaranteed. Review the private placement memorandum and risk factors carefully.
New York City 1031 Exchange Lawyer – Sishodia PLLC
Natalia A. Sishodia, Esq., LL.M.
Natalia A. Sishodia, Esq., LL.M., Managing Partner at Sishodia PLLC, is a New York City attorney known for designing individualized strategies for real estate matters, especially 1031 tax-deferred exchanges. She guides domestic and international investors through every stage of the deal, from contract to closing, across condos and co-ops, single- and multi-family properties, new developments, conversions, deed transfers, leasing, and lending. Meticulous planning and sharp negotiation have helped her successfully close hundreds of New York transactions with the “stress-free” experience that clients value.
A trusted counselor to high-net-worth individuals, celebrities, businesses, and major mortgage lenders, Ms. Sishodia pairs real-estate fluency with sophisticated tax insight. Fluent in English and Russian, she regularly serves clients with cross-border interests and assets. Her broader private-client practice spans elder law, estate planning, and multijurisdictional wealth management, including proactive planning for digital assets and cryptocurrency. Committed to service, she has contributed at the United Nations (DESA and the Convention on the Rights of Persons with Disabilities), supports Travelogion, and educates communities through legal seminars. Honors include the Award for Outstanding Achievement in International Law and the Avvo Client’s Choice Award. She is admitted in New York State.
Accessing Diverse Commercial Real Estate through DSTs
Delaware Statutory Trusts (DSTs) offer individual investors an unprecedented opportunity to access a diverse range of commercial real estate (CRE) options that are typically financially inaccessible to them. Investors pool their resources to acquire shares in a trust that holds large-scale, institutional-quality real estate, spanning from multifamily complexes to retail spaces, and from industrial warehouses to office buildings.
For investors looking to diversify their portfolio beyond the volatility of the stock market, DSTs provide a gateway to the stable returns and potential appreciation associated with CRE. The investment is not just about diversification, but also about the potential for competitive income streams from assets like a fully leased Amazon fulfillment center or a multifamily property in a prime location.
An integral component of the DST’s appeal is its alignment with the 1031 Exchange rules. DSTs qualify for these exchanges, allowing investors to defer capital gains taxes by reinvesting the proceeds from sold properties into “like-kind” real estate within a set timeframe. This tax advantage preserves the equity of their investment, enabling it to continue working for the investor in their new property.
Moreover, DSTs offer a solution to the often prohibitive time constraints of 1031 Exchanges. With DSTs often closing within a few business days, they provide a substantial benefit over traditional real estate transactions, which can be delayed due to various factors and thus risk breaching the 1031 Exchange’s strict deadlines.
Finding 1031 Exchange DST Properties
The national institutional real estate companies referred to collectively as “DST sponsors” are responsible for vetting and acquiring properties within every Delaware Statutory Trust. After the DST property is acquired, several parties do due diligence on the trust structure and property. DST sponsors package the DST offering and bring it to market through independent brokerages that have the necessary securities licenses to transact DSTs for clients.
DSTs can have one or more properties. Each DST will usually own one type of property. DSTs typically own institutional property of high quality, which can lead to higher income and potential appreciation. One DST might own multifamily apartments in a class A category, while another DST could own an industrial building, such as an Amazon Distribution Center, or net lease real property with corporate guaranteed retail tenants such as Walgreens and Whole Foods.
Many DST interests are offered through private placements under SEC Regulation D and are generally limited to accredited investors. These offerings are typically sold through broker-dealers or registered investment advisers, rather than broadly offered to the public.
Turning Your 1031 Exchange Property into a Delaware Statutory Trust (DST)
To benefit from DSTs, investors can sell the original investment property for an interest in a DST and become a fractional investor alongside other owners/investors. When an investor transfers ownership from a 1031 property into a DST, that individual is relieved of the responsibilities of managing the property. Also, having a fractional ownership interest in a DST provides investors with a diversified portfolio and passive income-producing property that allows them to continue deferring taxes on capital gains stemming from the sale of the original property.
Why You Should Consult with a New York 1031 Lawyer?
Even a seasoned investor can find IRS rules and regulations challenging. For buyers and sellers alike, learning how to take advantage of IRS Code § 1031 with a DST can be a demanding task. While online materials can be useful, nothing is as helpful as speaking with a legal professional whose practice involves real estate matters in New York. Enlist the help of a New York real estate lawyer who can guide you through tax laws, simplify the process, and help you avoid risks.
Contact Sishodia PLLC today online or by calling (833) 616-4646 to speak with a reputable 1031 exchange attorney to learn more about your real estate investment options.
