Ron Nielsen

Top 5 Requirements for a Successful 1031 Exchange with Delaware Statutory Trusts

Published on: May 23, 2025

A 1031 exchange is one of the smartest ways to grow your wealth, defer taxes, and simplify your real estate portfolio. But to truly maximize its benefits, the process must follow strict IRS guidelines. One mistake could mean losing the opportunity for tax deferral.

Here’s how to ensure your 1031 exchange runs smoothly and how Delaware Statutory Trusts (DSTs) can make the process even simpler.

1. The Property Must Be Held for Investment or Business Use

The IRS only allows 1031 exchanges for properties held for investment or productive business use. This means you can’t use the exchange for your personal residence. Both the property you sell (relinquished property) and the one you acquire (replacement property) must meet this criterion.

Examples of qualified properties:

  • Rental buildings

  • Commercial properties

  • Agricultural land

  • Triple-net lease assets

Examples of disqualified properties:

  • Primary residences

  • Vacation homes (unless rented and meeting strict criteria)

  • Fix-and-flips intended for resale

Why DSTs Work

DSTs offer a seamless solution because they are pre-packaged, professionally managed real estate investments that qualify as "like-kind" properties under IRS guidelines. You can exchange your property for fractional ownership in diversified, high-value assets like commercial buildings, retail centers, or industrial warehouses.

2. Work with a Qualified Intermediary (QI)

The IRS prohibits you from taking possession of the proceeds from your sale. Instead, the funds must be held by a Qualified Intermediary (QI), who then applies them to the purchase of your replacement property.

DST Advantage

By choosing a DST, you eliminate much of the stress that comes with managing funds or negotiating direct property purchases. The funds go directly into your DST, ensuring compliance with IRS regulations.

3. Meet the 45-Day and 180-Day Deadlines

Timing is critical for a successful exchange:

  • 45 days to identify potential replacement properties after selling your relinquished property.

  • 180 days to close on one or more of identified properties.

Missing either deadline voids tax deferral eligibility.

Simplify with DSTs

DST investments often have pre-vetted, turn-key properties ready to go. This simplifies the identification period, minimizes delays, and ensures you meet these hard deadlines.

4. Replace the Property with Equal or Greater Value

To defer 100% of your capital gains tax:

  • The replacement property must be of equal or greater value than the property sold.

  • All proceeds from the sale must be reinvested.

  • Any loan amount paid off must be replaced with either a new loan or additional cash investment.

Why Choose DSTs

DSTs make it easy to reinvest your total proceeds and meet this requirement. You gain fractional ownership in institutional-quality assets without needing to actively manage or negotiate financing.

5. Title and Taxpayer Must Match

The name on the title of the relinquished property must match the name on the title of the replacement property. This applies to both individuals and entities (like an LLC).

DST Flexibility

DSTs allow individual investors or entities to seamlessly step into fractional ownership without complex changes to titles or taxpayer structures, making the legalities of a 1031 exchange far simpler.

Bonus Tip DST Simplifies Compliance and Enhances Benefits

At Medalist Holdings, we specialize in Delaware Statutory Trusts to help investors streamline their 1031 exchanges while enjoying significant perks. All our DSTs are designed to offer:

  • Turnkey Compliance Be 1031-ready with IRS-approved investment options.

  • Passive Income Earn steady dividends without the hassles of active property management.

  • Diversification and Quality Own shares in institutional-grade, long-lease properties backed by high-credit tenants.

  • Estate Planning Advantages DSTs fit seamlessly into long-term wealth strategies with the potential for 721 UPREIT conversions.

Many of our clients appreciate that DSTs take the legwork out of investing, leaving you more time to focus on your other priorities. You won’t need to worry about tenant issues, property maintenance, or complicated coordination.

Plan Your 1031 Exchange Today

A successful 1031 exchange can save you hundreds of thousands in taxes and unlock exciting new investment opportunities—but only if you follow every step carefully. With DSTs from Medalist, the process has never been easier.

We simplify your exchange, so you can focus on growing your wealth and securing your financial legacy.