--- title: "Depreciation in DSTs Post-Exchange: What Carries Over and What Resets?" description: "Learn more about depreciation in DSTs post-exchange: what carries over and what resets." image: https://www.realized1031.com/hubfs/iStock-1224887118-modified-0c7e6142-dd4d-430d-a3c2-e4beb2fb51f6.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Depreciation in DSTs Post-Exchange: What Carries Over and What Resets? Posted Dec 13, 2025 ![iS-1224887118](https://www.realized1031.com/hs-fs/hubfs/iStock-1224887118-modified-0c7e6142-dd4d-430d-a3c2-e4beb2fb51f6.jpg?width=2309&height=1299&name=iStock-1224887118-modified-0c7e6142-dd4d-430d-a3c2-e4beb2fb51f6.jpg) As you invest from a 1031 exchange into a Delaware Statutory Trust (DST), one concern that you might want to consider is depreciation. What happens to the depreciation from the previous property? Do you get a fresh start now that the DST has several underlying income-generating assets? The answer isn’t straightforward, but it’s largely reliant on how tax laws view your basis, what’s considered “new,” and what “carries over.” In this article, Realized 1031 goes in-depth into this topic to help you gain a better grasp. Let’s take a closer look. ### How Depreciation Works in 1031 Exchanges Depreciation, or more formally known as accounting depreciation, is the [paper losses that account for an asset’s wear and tear](https://www.investopedia.com/articles/investing/060815/how-rental-property-depreciation-works.asp) over the years. The main benefit of applying depreciation is that it reduces the value of your property for tax purposes, reducing your tax burden. For commercial properties, the main framework followed is the straight-line depreciation. This is a [39-year schedule](https://www.irs.gov/publications/p946) that allows you to deduct a roughly equal percentage of the building’s cost each year over that period. In 1031 exchanges, depreciation schedules typically don’t reset. Since there is [no official sale](https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx), depreciation also continues. This reality adds a few complications when you invest in a DST, which can own multiple properties. ### DST Carry Over: What Is Included? The basis carries over from your relinquished property into the new investment, even if it’s a DST. This also means that the depreciation you applied to the old asset will carry over and continue in the new one, but only that portion. Let’s say that you relinquished an asset that you’ve been depreciating for the past 10 years. As you enter the DST, the portion of your new investment that represents deferred gains continues to year 11. This continuation helps with compliance with IRS rules. Only when [a taxable event occurs](https://www.realized1031.com/blog/what-is-the-holding-period-for-a-delaware-statutory-trust-dst) does the depreciation schedule reset. ### What Resets? The only time depreciation “resets” is when a portion of your investment is new capital, not from the basis carried over. This capital is also called the new-money basis, and it’s treated as a new acquisition. As such, this portion qualifies for a new depreciation schedule. ### Depreciation DST: Why This Accounting Figure Matters DSTs, thanks to their structure, take care of the depreciation schedules for the underlying properties. The resulting benefits flow through to the investors. As such, the only schedule that you really need to consider is that of the carryover and new basis, if applicable. Even so, depreciation still has a direct impact on your taxable income from the DST. Since the figure reduces the portion of income subject to taxation, knowing what carries over and what resets helps you calculate your tax obligations more accurately, preventing unwanted surprises. This understanding also applies when you [sell DST interests](https://www.realized1031.com/blog/what-is-the-holding-period-for-a-delaware-statutory-trust-dst). If you saw a profit, then depreciation recapture will be applicable. Knowing how much you’ll need to pay helps you prepare ahead. ### Wrapping Up: Understanding DST Depreciation After a 1031 Exchange As you finish a 1031 exchange by entering a DST, understanding how depreciation applies to your carry-over basis and new money basis is crucial for proper tax planning. Work closely with your tax advisor to better grasp how such a blended depreciation schedule works and what it means when you eventually sell your DST interests or stop the 1031 exchange cycle. **Sources:** [https://www.irs.gov/publications/p946](https://www.irs.gov/publications/p946) [https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.asp](https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx) [https://www.investopedia.com/articles/investing/060815/how-rental-property-depreciation-works.asp](https://www.investopedia.com/articles/investing/060815/how-rental-property-depreciation-works.asp) Download The Guide To DSTs [![The Investor's Guidebook To DSTs](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/DST-eBook-250.png?width=250&height=250&name=DST-eBook-250.png "See if Delaware Statutory ...") ](https://www.realized1031.com/blog/depreciation-in-dsts-post-exchange-what-carries-over-and-what-resets#blogform) Download eBook ---   --- ### The Investor's Guidebook To DSTs ![Download The Guide To DSTs](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/DST-eBook-550.jpg?width=550&height=650&name=DST-eBook-550.jpg) See if Delaware Statutory Trusts are right for you. 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The answer isn’t straightforward, but it’s largely reliant on how tax laws view your basis, what’s considered “new,” and what “carries over.” In this article, Realized 1031 goes in-depth into this topic to help you gain a better grasp. Let’s take a closer look. How Depreciation Works in 1031 Exchanges Depreciation, or more formally known as accounting depreciation, is the paper losses that account for an asset’s wear and tear over the years. The main benefit of applying depreciation is that it reduces the value of your property for tax purposes, reducing your tax burden. For commercial properties, the main framework followed is the straight-line depreciation. This is a 39-year schedule that allows you to deduct a roughly equal percentage of the building’s cost each year over that period. In 1031 exchanges, depreciation schedules typically don’t reset. Since there is no official sale, depreciation also continues. This reality adds a few complications when you invest in a DST, which can own multiple properties. DST Carry Over: What Is Included? The basis carries over from your relinquished property into the new investment, even if it’s a DST. This also means that the depreciation you applied to the old asset will carry over and continue in the new one, but only that portion. Let’s say that you relinquished an asset that you’ve been depreciating for the past 10 years. As you enter the DST, the portion of your new investment that represents deferred gains continues to year 11. This continuation helps with compliance with IRS rules. Only when a taxable event occurs does the depreciation schedule reset. What Resets? The only time depreciation “resets” is when a portion of your investment is new capital, not from the basis carried over. This capital is also called the new-money basis, and it’s treated as a new acquisition. As such, this portion qualifies for a new depreciation schedule. Depreciation DST: Why This Accounting Figure Matters DSTs, thanks to their structure, take care of the depreciation schedules for the underlying properties. The resulting benefits flow through to the investors. As such, the only schedule that you really need to consider is that of the carryover and new basis, if applicable. Even so, depreciation still has a direct impact on your taxable income from the DST. Since the figure reduces the portion of income subject to taxation, knowing what carries over and what resets helps you calculate your tax obligations more accurately, preventing unwanted surprises. This understanding also applies when you sell DST interests. If you saw a profit, then depreciation recapture will be applicable. Knowing how much you’ll need to pay helps you prepare ahead. Wrapping Up: Understanding DST Depreciation After a 1031 Exchange As you finish a 1031 exchange by entering a DST, understanding how depreciation applies to your carry-over basis and new money basis is crucial for proper tax planning. Work closely with your tax advisor to better grasp how such a blended depreciation schedule works and what it means when you eventually sell your DST interests or stop the 1031 exchange cycle. Sources: https://www.irs.gov/publications/p946 https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.asp https://www.investopedia.com/articles/investing/060815/how-rental-property-depreciation-works.asp", "articleSection" : [ "Delaware Statutory Trusts (DST)" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2025-12-13T15:00:01+0000", "datePublished" : "2025-12-13T15:00:01+0000", "description" : "Learn more about depreciation in DSTs post-exchange: what carries over and what resets.", "headline" : "Depreciation in DSTs Post-Exchange: What Carries Over and What Resets?", "image" : { "@type" : "ImageObject", "height" : 1299, "url" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/iStock-1224887118-modified-0c7e6142-dd4d-430d-a3c2-e4beb2fb51f6.jpg", "width" : 2309 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/depreciation-in-dsts-post-exchange-what-carries-over-and-what-resets", "name" : "Depreciation in DSTs Post-Exchange: What Carries Over and What Resets?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/iStock-1224887118-modified-0c7e6142-dd4d-430d-a3c2-e4beb2fb51f6.jpg" } ```