Tax season can be a confusing time of year. As a first time Delaware Statutory Trust (DST) investor, you’ll have an extra layer of confusion to deal with. This article is meant to give you a heads up on what to expect at year-end when it comes to DST tax documents.
Effect Of Entity Type On Tax Filing
As an investor in a DST, the entity in which you own your beneficial interests may impact how you file your taxes and when. Filing as a corporation vs. an individual or pass-through entity changes the deadline date for your tax filing. These deadlines aren’t related to your DST but instead to the entity type.
Filing as an S-Corp or partnership — if you’re invested through an S-Corp or partnership, your filing deadline is March 15th instead of the standard April 15th deadline.
Filing as an individual, estate, trust, or C-Corp — most clients are invested in their names individually or via a pass-through entity like an LLC. Therefore, the corporation deadlines do not impact these clients. Their filing deadline is the individual tax return filing deadline of April 15th. This also applies if filing as an estate, trust, or C-Corp.
DSTs And States
DSTs may own one or more properties spread across multiple states (like ExchangeRight’s Net Lease Portfolios). You’ll be required to file for each state that has an income tax. Investing in a DST that owns income-generating properties in multiple states can complicate your tax filings. It can also increase costs due to filing in multiple states.
States, such as Texas or Florida, have no state income tax. Other states have de minimis filing standards, which means that you won’t have to file in those states if you didn’t earn a certain amount of income. Every state has different rules and regulations, so its best to check with a tax professional.
Be prepared to pay more overall for adding your DST to your tax filings. More state filings lead to higher preparation fees, which means more money out of your pocket. Remember, however, that DST tax filings are typically more straightforward and simple than tax filings for direct property, especially if that direct property has any personal property on it with various depreciation schedules.
What Documents To Expect For Tax Filing
As a first time DST investor, your first tax season can be confusing. DSTs don’t send out K-1s or 1099s. Instead, you’ll receive separate year-end statements for every DST you’re invested in, and there isn’t a consistent statement used by all sponsors (Grantor letter, modified 1099, etc.). Generally, a pro-rata operating statement is sent out. This statement includes income and expenses for each property. The pro-rata is sometimes called a substitute 1099. Any DST documents should be given to your tax professional for completing your tax return.
Do you have a tax professional to help you with your taxes? If not, we have a directory of CPAs and can introduce you to someone in your area. If you have any questions regarding your DST investments, please feel free to contact us anytime.