A Delaware Statutory Trust (DST) is a legally recognized trust that is set up for the purpose of business but is especially popular in the real estate industry. DSTs allow for fractional ownership in property investments, where investors can own a share of the trust itself, which holds assets, often in the form of real estate properties.
One significant advantage of investing in a DST is the tax pass-through status. Tax pass-through refers to the tax treatment where the income, losses, deductions, and credits of the trust are “passed through” to the individual investors, meaning that they are reported on the investors’ individual tax returns and taxed at their individual income tax rates, rather than at the trust level.
This can be especially advantageous for investors looking for tax-efficient investment structures, as it allows for the avoidance of double taxation, which would occur if the income were taxed at both the entity and the investor levels. Additionally, DSTs can be used by investors to facilitate 1031 exchanges, allowing deferral of capital gains taxes on real estate transactions under certain conditions, and providing another potential tax benefit for real estate investors.