[Webinar Recap] How To Treat Your DSTs During Tax Season: Understanding Basis Calculations


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Posted Mar 27, 2023

A Delaware Statutory Trust, or DST, is an investment vehicle that can help investors seek passive income while having fractional ownership in commercial real estate. When investing in a DST, you can use a 1031 exchange to defer the capital gains taxes due when you sell an investment property.

Managing your DSTs during tax season can be tricky, as they don’t work the same way that traditional real estate investments do. In a recent webinar, Realized covered some key calculations to manage your DSTs during tax season. In this blog, we’ll recap some of these key terms and calculations you’ll need to know as you file your taxes.

Determining Adjusted Tax Basis

The first step to take when calculating taxes is to determine your adjusted tax basis. This is the tax basis of the property you sold before buying into the DST. To determine your beginning basis, you will subtract the depreciation amount from the original amount of equity invested.

There are a few different ways to calculate depreciation. In most cases, depreciation is calculated at a standard rate, with a deduction in value for each year after purchase up to a certain point. This rate is calculated based on the type of property you own and how long you owned it - commercial properties can apply a standard depreciation rate for many more years than residential properties can.

You’ll also need to consider the net proceeds from your 1031 sale. To calculate this, you’ll take the total sale price of the property and subtract any relinquished debt from mortgages you had on it. (This information is important for final tax calculations later on.)

Calculating Tax Basis for New DST Investments

Once you have calculated the adjusted tax basis for your initial property, you will then need to calculate the depreciable basis of your DST investment after exchange. Let’s say that you sold your initial property for $1 million and then opted to reinvest the entire proceeds into a DST via a 1031 exchange.

In many cases, you will take on new mortgage debt for the properties in the DST. Although you are not technically paying the mortgage in this case, you still assume responsibility for a portion of the debt through the DST. For the purposes of this example, let’s say you assume responsibility for $1.2 million of a mortgage through the DST. To calculate your total investment, you would add together the $1 million you invested in total proceeds and the $1.2 million in mortgage debt for a total of $2.2 million.

Next, you’ll need to calculate the depreciable basis after exchange for your new property. To do this, you will start with the adjusted tax basis from your relinquished property. Next, you will subtract this adjusted tax basis from your new mortgage debt. In our example, let’s say your original adjusted tax basis was $400,000. You would subtract this from your $1.2 million in new tax debt, which leaves you with a depreciable basis after exchange of $800,000.

Calculating Total New Tax Basis

After finishing these initial calculations, you can calculate your total tax basis after exchange. This new tax basis is essentially the difference between the relinquished property value and the replacement property value. Because the DST is a reinvestment vehicle, the new tax basis is based on the difference in debt.

For this, you will take your total new debt and subtract your relinquished debt. In our example, the total new debt is $1.2 million. Let’s say that you had $200,000 left on your mortgage when you relinquished the first property. You would subtract this amount from the $1.2 million in new debt for a total new basis of $1 million. You can then use these numbers when filing your taxes.


Understanding these calculations can make it easier to process your DSTs this tax season. Of course, every situation is unique, so be sure to consult with your CPA as you file your taxes. If you don’t have a trusted CPA, feel free to reach out to Realized for recommendations.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

Costs associated with a 1031 transaction may impact investor’s returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.

No public market currently exists and one may never exist. DST programs are speculative and suitable only for Accredited Investors who do not anticipate a need for liquidity or can afford to lose their entire investment.

Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

Examples shown are hypothetical and for illustrative purposes only. Actual results may vary.

All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested and there is no guarantee that you will receive any income.

The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. 

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