Sell Your Rentals, Skip the Tax Bill: The 1031 DST Explained
You have owned the property for years. It has appreciated. You have depreciated it down to almost nothing. Now you are tired of tenants, tired of toilets, tired of property managers, tired of making decisions about roofs and HVAC systems and lease renewals. So you decide to sell, and then your CPA tells you exactly how much tax you are going to owe.
Most investors know a 1031 exchange defers that gain. The catch is that a traditional 1031 puts you right back into another piece of real estate you have to identify, acquire, own, and manage. Heidi Henderson sits down with Todd Lofgren of Alternative Tax Management to walk through the option a surprising number of investors have never heard of. The Delaware Statutory Trust.
A DST lets you roll your proceeds into fractional ownership of a professionally managed portfolio of properties. It satisfies the 1031 requirements, it keeps you invested in real estate, and it moves the day to day management to a sponsor. Todd calls it the exit ramp from the managerial role.
Todd and Heidi get into the mechanics. What you actually own, how sponsors structure the trust, why the debt on your old property has to come with you, and how distributions come back tax friendly because depreciation starts over. They also cover what you give up: zero liquidity, no control, and a four to seven year hold. If you ever cash out, the capital gains and 25% depreciation recapture from that original property follow you the entire way.
Todd also breaks down the due diligence side, which is where most investors are flying blind. Boutique shops with creative marketing and nothing behind the fact sheets. Offerings that hit their capital raise and vanish. Why real inventory matters when your proceeds are ready to move.
KEY TOPICS
What a Delaware Statutory Trust is, its 1988 origin in Delaware, and the 2004 IRS ruling that made DSTs valid 1031 replacement property in all states | Sponsors, accredited investors, and the $100,000 typical minimum | The boot problem and how leftover 1031 proceeds avoid a tax bill | Diversifying across sponsors, locations, and asset classes from multifamily to self storage to net lease | Why the qualified intermediary process stays the same and why constructive receipt kills the exchange | Why a low basis after cost segregation makes selling so expensive | A $500,000 purchase that appreciated to $1 million, and why your debt has to be replaced inside the DST | Monthly and quarterly distributions and why the income is tax friendly | The four to seven year horizon and what happens at full cycle | What it costs to exit: capital gains plus 25% depreciation recapture | The legacy play and the step up in basis for heirs | Zero liquidity in a DST vs UPREIT liquidity windows | How to tell a quality DST from one to avoid | Why calling before you sell beats calling on day 43
ABOUT TODD LOFGREN
Todd Lofgren has over 25 years of experience in the financial services industry working with institutional asset managers, providing investment solutions to financial advisors and CPAs. Todd uses his diverse background to partner with advisors, accounting professionals, and others to deliver tax advantaged solutions for high net worth clients and small business owners. He lives in Berwyn, Pennsylvania with his wife Lianne and their three children, and in his free time enjoys tennis, pickleball, golf, and live music.
CONNECT WITH TODD LOFGREN & ALTERNATIVE TAX MANAGEMENT
Website: https://www.alternativetaxmanagement.com/
LinkedIn: https://www.linkedin.com/in/todd-lofgren-awm/
Email: tlofgren@alternativetm.com
Resources:
Get A Free Cost Segregation Benefit Analysis Here:
https://portal.engineeredtaxservices.com/get-started?ref_id=njg2zdv
IRS Audit Technique Guidelines:
https://www.irs.gov/pub/irs-pdf/p5653.pdf
Baselane Affiliate Link:
https://baselane.com/engineeredtaxservices
Baselane Promo Code: ENGINEERING6
Use promo code ENGINEERING6 to receive 6 months of free Baselane Smart premium tier. Enter the code when prompted to subscribe to Baselane Smart.
Links:
LinkedIn - linkedin.com/in/heidihenderson
Instagram - instagram.com/slashtaxwithheidi
Facebook - facebook.com/slashtaxwithheidi
https://app.411core.com/r/XCB
LEARN MORE
Engineered Tax Services has helped investors and business owners unlock millions in tax savings for nearly 25 years through cost segregation, R&D credits, and energy incentives like 179D and 45L.
👉 Visit engineeredtaxservices.com
DSTs are investments. They carry risk, fees, liquidity restrictions, and specific tax requirements. Any return figures discussed are historical or hypothetical and are not a guarantee of future performance. Nothing in this episode is investment, tax, or legal advice. Evaluate any DST with a qualified tax, legal, and investment professional before acting.
Subscribe to Slash Tax | Leave a review | Share with an investor who is ready to stop managing property
TIMESTAMPS
00:00 Tired of tenants, tired of toilets
00:40 The problem with selling appreciated real estate
01:44 Why a traditional 1031 puts you back into another property
02:20 Meet Todd Lofgren of Alternative Tax Management
05:02 Who comes looking for a DST and why
06:32 The boot problem: leftover 1031 proceeds with nowhere to go
07:38 What a Delaware Statutory Trust actually is
07:52 1988 in Delaware and the 2004 IRS ruling that opened it up
09:12 Accredited investors and the $100,000 minimum
09:48 What you actually own and how property type drives distributions
11:25 Diversifying across sponsors, locations, and asset classes
12:37 The qualified intermediary and avoiding constructive receipt
13:47 Why DSTs fill their capital raise and disappear
14:43 When cost segregation leaves you with no basis left
15:12 The due diligence gap most investors never see
18:08 Smaller trusts vs the massive conglomerate funds
20:29 The numbers: a $500,000 purchase that appreciated to $1 million
21:03 Why your debt has to come with you into the DST
22:01 How you get paid: monthly and quarterly distributions
23:42 The four to seven year horizon and expected returns
24:23 Capital gains and 25% depreciation recapture if you exit
24:49 The legacy play: step up in basis for your heirs
26:19 UPREIT liquidity windows vs zero liquidity in a DST
28:05 Why baby boomers are driving DST demand
28:40 What separates a great DST from one to avoid
30:24 When to call: before you sell, or on day 43 if you have to
32:20 How to reach Todd and final takeaways
Most investors know a 1031 exchange defers that gain. The catch is that a traditional 1031 puts you right back into another piece of real estate you have to identify, acquire, own, and manage. Heidi Henderson sits down with Todd Lofgren of Alternative Tax Management to walk through the option a surprising number of investors have never heard of. The Delaware Statutory Trust.
A DST lets you roll your proceeds into fractional ownership of a professionally managed portfolio of properties. It satisfies the 1031 requirements, it keeps you invested in real estate, and it moves the day to day management to a sponsor. Todd calls it the exit ramp from the managerial role.
Todd and Heidi get into the mechanics. What you actually own, how sponsors structure the trust, why the debt on your old property has to come with you, and how distributions come back tax friendly because depreciation starts over. They also cover what you give up: zero liquidity, no control, and a four to seven year hold. If you ever cash out, the capital gains and 25% depreciation recapture from that original property follow you the entire way.
Todd also breaks down the due diligence side, which is where most investors are flying blind. Boutique shops with creative marketing and nothing behind the fact sheets. Offerings that hit their capital raise and vanish. Why real inventory matters when your proceeds are ready to move.
KEY TOPICS
What a Delaware Statutory Trust is, its 1988 origin in Delaware, and the 2004 IRS ruling that made DSTs valid 1031 replacement property in all states | Sponsors, accredited investors, and the $100,000 typical minimum | The boot problem and how leftover 1031 proceeds avoid a tax bill | Diversifying across sponsors, locations, and asset classes from multifamily to self storage to net lease | Why the qualified intermediary process stays the same and why constructive receipt kills the exchange | Why a low basis after cost segregation makes selling so expensive | A $500,000 purchase that appreciated to $1 million, and why your debt has to be replaced inside the DST | Monthly and quarterly distributions and why the income is tax friendly | The four to seven year horizon and what happens at full cycle | What it costs to exit: capital gains plus 25% depreciation recapture | The legacy play and the step up in basis for heirs | Zero liquidity in a DST vs UPREIT liquidity windows | How to tell a quality DST from one to avoid | Why calling before you sell beats calling on day 43
ABOUT TODD LOFGREN
Todd Lofgren has over 25 years of experience in the financial services industry working with institutional asset managers, providing investment solutions to financial advisors and CPAs. Todd uses his diverse background to partner with advisors, accounting professionals, and others to deliver tax advantaged solutions for high net worth clients and small business owners. He lives in Berwyn, Pennsylvania with his wife Lianne and their three children, and in his free time enjoys tennis, pickleball, golf, and live music.
CONNECT WITH TODD LOFGREN & ALTERNATIVE TAX MANAGEMENT
Website: https://www.alternativetaxmanagement.com/
LinkedIn: https://www.linkedin.com/in/todd-lofgren-awm/
Email: tlofgren@alternativetm.com
Resources:
Get A Free Cost Segregation Benefit Analysis Here:
https://portal.engineeredtaxservices.com/get-started?ref_id=njg2zdv
IRS Audit Technique Guidelines:
https://www.irs.gov/pub/irs-pdf/p5653.pdf
Baselane Affiliate Link:
https://baselane.com/engineeredtaxservices
Baselane Promo Code: ENGINEERING6
Use promo code ENGINEERING6 to receive 6 months of free Baselane Smart premium tier. Enter the code when prompted to subscribe to Baselane Smart.
Links:
LinkedIn - linkedin.com/in/heidihenderson
Instagram - instagram.com/slashtaxwithheidi
Facebook - facebook.com/slashtaxwithheidi
https://app.411core.com/r/XCB
LEARN MORE
Engineered Tax Services has helped investors and business owners unlock millions in tax savings for nearly 25 years through cost segregation, R&D credits, and energy incentives like 179D and 45L.
👉 Visit engineeredtaxservices.com
DSTs are investments. They carry risk, fees, liquidity restrictions, and specific tax requirements. Any return figures discussed are historical or hypothetical and are not a guarantee of future performance. Nothing in this episode is investment, tax, or legal advice. Evaluate any DST with a qualified tax, legal, and investment professional before acting.
Subscribe to Slash Tax | Leave a review | Share with an investor who is ready to stop managing property
TIMESTAMPS
00:00 Tired of tenants, tired of toilets
00:40 The problem with selling appreciated real estate
01:44 Why a traditional 1031 puts you back into another property
02:20 Meet Todd Lofgren of Alternative Tax Management
05:02 Who comes looking for a DST and why
06:32 The boot problem: leftover 1031 proceeds with nowhere to go
07:38 What a Delaware Statutory Trust actually is
07:52 1988 in Delaware and the 2004 IRS ruling that opened it up
09:12 Accredited investors and the $100,000 minimum
09:48 What you actually own and how property type drives distributions
11:25 Diversifying across sponsors, locations, and asset classes
12:37 The qualified intermediary and avoiding constructive receipt
13:47 Why DSTs fill their capital raise and disappear
14:43 When cost segregation leaves you with no basis left
15:12 The due diligence gap most investors never see
18:08 Smaller trusts vs the massive conglomerate funds
20:29 The numbers: a $500,000 purchase that appreciated to $1 million
21:03 Why your debt has to come with you into the DST
22:01 How you get paid: monthly and quarterly distributions
23:42 The four to seven year horizon and expected returns
24:23 Capital gains and 25% depreciation recapture if you exit
24:49 The legacy play: step up in basis for your heirs
26:19 UPREIT liquidity windows vs zero liquidity in a DST
28:05 Why baby boomers are driving DST demand
28:40 What separates a great DST from one to avoid
30:24 When to call: before you sell, or on day 43 if you have to
32:20 How to reach Todd and final takeaways