An Inland 1031 DST exchange lets you sell an investment property, defer the capital gains tax under Section 1031, and reinvest the proceeds into a fractional beneficial interest in a Delaware Statutory Trust sponsored by Inland Private Capital Corporation. The trust already owns commercial real estate that Inland selected, financed, and operates, so you move from active landlord to passive owner without missing the 1031 clock. The IRS treats your DST interest as direct ownership of real property, which is what makes the exchange work. In return, you give up control over the asset, accept that your money is locked up for years, and pay upfront costs that typically run 8-12% of what you invest.
What an Inland DST Actually Is
A Delaware Statutory Trust holds title to one or more commercial properties. When you invest, you receive an undivided beneficial interest in that trust, sized to your contribution. Inland acts as the sponsor: it identifies the property, arranges the mortgage, sets aside reserves, and manages operations through the trust’s lifecycle.
The tax treatment rests on Revenue Ruling 2004-86, in which the IRS confirmed that an investor exchanging real property for a beneficial interest in a qualifying DST is treated as exchanging real property for real property, not for a security excluded by Section 1031(a)(2)(E).1Internal Revenue Service. Revenue Ruling 2004-86 The trust must operate within strict limits to keep that classification, which shapes what Inland can and cannot do with the property after you invest.
Since the Tax Cuts and Jobs Act took effect in 2018, Section 1031 deferral applies only to real property. Personal property exchanges no longer qualify.2Internal Revenue Service. Like-Kind Exchanges – Real Estate Tax Tips The deferral is not forgiveness. Your original cost basis carries into the DST interest, so the tax liability travels with you until you sell without exchanging, or until your heirs receive a stepped-up basis at your death.
The 45-Day and 180-Day Deadlines
Two deadlines run from the day you close on the property you’re selling. You have 45 days to identify replacement properties in writing, and 180 days (or your tax return due date with extensions, whichever comes first) to close on them.3Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use or Investment Miss either and the exchange fails. You owe tax on the full gain as if you never tried.
Within the 45-day window, the three-property rule lets you identify up to three replacement candidates of any value. If you name more than three, the total fair market value of your list cannot exceed 200% of the sale price of the property you sold. A narrower 95% rule allows more identifications if you actually close on at least 95% of the identified value, but it’s rarely relied on.4Internal Revenue Service. Like-Kind Exchanges Under IRC Section 1031
This is where DSTs solve a real problem. An Inland offering is already acquired, financed, and operating when you identify it. There is no negotiation, no inspection contingency, no seller who might walk. You identify the DST within 45 days, your qualified intermediary funds it, and the exchange closes, often within about two weeks of submitting paperwork. For sellers staring at the calendar, that speed matters.
How the Exchange Happens
The process follows a predictable sequence, with almost no margin for error.
You sell your investment property and have the closing agent send the proceeds directly to a qualified intermediary. The qualified intermediary is an independent third party who holds the funds so that you never have actual or constructive receipt of them. Touch the money, even briefly, and the exchange can collapse.2Internal Revenue Service. Like-Kind Exchanges – Real Estate Tax Tips The intermediary cannot be your attorney, agent, or broker.
Within 45 days, you identify one or more Inland DST offerings as your replacement. Your registered representative or advisor matches offerings to your equity amount, debt replacement needs, and objectives. You sign a subscription agreement and investor questionnaire that spell out the dollar amount, how the interest will be titled, and your accredited investor documentation.3Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use or Investment
Titling is easy to get wrong and expensive to fix. The name on the replacement interest must match the name that sold the relinquished property. Selling as an individual and then trying to invest through a family trust creates a mismatch that can trigger the full tax bill the exchange was meant to defer.5Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
Once Inland approves the subscription, the qualified intermediary wires the funds to the designated escrow agent, you receive the transfer documents that record your beneficial interest, and Inland issues a final confirmation. Two weeks is a common timeline, though bank processing can stretch it.
Debt Replacement and Boot
A 1031 exchange requires you to replace both the equity and the debt from the property you sold. If you sold a $500,000 property with a $150,000 mortgage, the replacement side needs at least $500,000 in total value and at least $150,000 in associated debt. Any shortfall on the debt side is treated as boot, meaning it’s taxable.3Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use or Investment
DSTs handle this cleanly because the financing is already in place. Each offering has a set loan-to-value ratio, and your proportional share of the trust’s mortgage counts toward your debt replacement. Your advisor matches your equity and debt figures to a single DST or a combination that satisfies the requirement. You can also add cash to close a debt gap, though that ties up more capital.
Property Types Inland Typically Holds
Inland’s DST portfolio focuses on commercial asset classes with long-term leases and stable demand, and on properties large enough to attract institutional buyers at eventual sale.6Inland. 1031 Exchange and DSTs Common categories include:
- Multifamily housing in high-growth corridors, selected on occupancy and employment trends
- Self-storage facilities with low overhead
- Healthcare real estate such as medical office buildings and outpatient clinics anchored by hospital-system leases
- Necessity-based retail, including grocery-anchored centers
- Industrial and logistics warehouses tied to e-commerce demand
Selection criteria emphasize tenants with strong credit and markets with favorable population growth, spread across regions. Past performance of any property type does not predict future returns, and even well-chosen commercial assets lose value during recessions.
Who Can Invest
Inland’s DST offerings are private placements sold under Rule 506(b) or 506(c) of Regulation D, so only accredited investors qualify.7eCFR. 17 CFR 230.506 – Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering You meet the accredited standard if you satisfy any one of these tests:8U.S. Securities and Exchange Commission. Accredited Investors
- Net worth over $1 million, alone or with a spouse or partner, excluding the value of your primary residence
- Individual income over $200,000 in each of the prior two years, with a reasonable expectation of the same in the current year
- Joint income over $300,000 with a spouse or partner across the same period
Under 506(c), Inland must take reasonable steps to verify your status, typically by reviewing tax returns, W-2s, or brokerage statements. Under 506(b), self-certification through the questionnaire is more common, though the sponsor still reviews it.
What It Costs
DST investments carry upfront costs meaningfully higher than buying a rental yourself or investing in a publicly traded REIT. The total load, which covers selling commissions to broker-dealers, organization and offering expenses, and other sponsor fees, commonly runs 8% to 12% of the cash you invest. On a $500,000 exchange, that’s $40,000 to $60,000 going to transaction costs before a dollar reaches the real estate. The full breakdown lives in the private placement memorandum for each offering, and it varies. Review it with your advisor before committing.
Beyond the upfront load, ongoing asset management fees and property-level expenses reduce your cash distributions. These come out before distributions reach you, so the yields quoted in offering materials are typically net of them. When comparing costs, factor in what you’re paying today: an outside property manager taking 8-10% of rental income, plus vacancies, maintenance surprises, and your own time.
The Seven Restrictions That Shape the Investment
To preserve DST treatment under Revenue Ruling 2004-86, the trust must operate within tight limits.1Internal Revenue Service. Revenue Ruling 2004-86 These rules aren’t guidance; violating any one can reclassify the trust and destroy the 1031 treatment for every investor in it. They shape what Inland can do with the property after you buy in:
- No additional capital contributions from investors after formation, so unexpected costs must come out of reserves
- No new financing or refinancing of the existing mortgage
- No new leases or lease modifications, except when a tenant becomes insolvent or bankrupt
- Mandatory cash distributions at least quarterly, net of reserves
- Reserve funds held only in short-term debt or government securities
- Capital expenditures limited to normal maintenance, minor non-structural improvements, and legally required work
- No reinvestment of sale proceeds when the property sells; proceeds go to investors
The practical effect: Inland’s most important decisions happen before the offering opens. Property selection, financing terms, and reserve sizing are locked in. Once you invest, the trust runs on autopilot within a narrow lane. That’s the appeal for a hands-off investor and the risk if conditions change and the trust can’t respond.
How You Get Out
DSTs are illiquid. Plan to hold for the full duration of the trust, typically five to ten years depending on the offering. There is no redemption feature. You cannot ask Inland for your money back.
A secondary market exists, run by broker-dealers who specialize in these transactions, but there is no guarantee you’ll find a buyer, and the price may be well below your original investment. What you receive depends on property performance, interest rates, remaining hold period, and how urgently you need to sell.
The standard exit is a full-cycle event. Inland sells the property, dissolves the trust, and distributes net proceeds by ownership percentage. Investors usually get three to six months’ notice before the sale. You then choose: take the cash and pay capital gains tax plus depreciation recapture, or roll the proceeds into another 1031 exchange. If you exchange again, the qualified intermediary must receive the funds directly. You still cannot handle the money personally.
The 721 UPREIT Path
Inland offers certain DSTs designed for a combined 1031/721 exchange, which opens an additional exit.9Inland. 721 Exchange Under Section 721, you can contribute your DST interest to a REIT’s operating partnership in exchange for limited partnership units (OP units), on a generally tax-deferred basis.
These 1031/721 DSTs tend to have shorter hold periods, averaging two to three years. At the end of that window, you may have the option to convert your DST interest into OP units representing an interest in the REIT’s broader portfolio. The operating partnership agreement may include a redemption program letting you convert OP units to cash or REIT shares over time. Redemption isn’t guaranteed and can be suspended, but it offers a liquidity path a traditional DST doesn’t have.
Risks Worth Sitting With
DSTs are not savings accounts wrapped in real estate. The main risks:
No investor control. The Seven Restrictions mean Inland runs the property, and you have no vote on management. If the sponsor makes poor choices, your recourse is whatever the trust agreement provides, which is usually very little. Returns depend on the sponsor’s competence and integrity.
Illiquidity. Your money is committed for years. The secondary market is thin. If your circumstances change, a DST interest is one of the harder assets to turn into cash.
Fixed debt. The trust cannot refinance. If rates fall, the trust cannot capture savings. If rates rise, higher cap rates can compress property values at disposition.
Loss of principal. You can receive less than you invested. Vacancies, tenant defaults, property damage, and downturns all affect the underlying real estate. Sponsor projections are estimates, not promises.
Regulatory risk. If the IRS changes DST treatment or tightens the rules under Revenue Ruling 2004-86, the tax-deferral benefit that makes these investments attractive could be altered for future exchanges.
None of this makes DSTs a poor choice. It makes them a choice that deserves the same scrutiny you’d give to buying a commercial property directly. Passive ownership doesn’t remove real estate risk; it hands the decisions to someone else.