Clearing Up The Confusion
Deferred Sales Trust vs. Delaware Statutory Trust: Two Different “DSTs”
They share an acronym and both defer tax on a sale, but they are entirely different tools, built on different sections of the tax code. Here is how to tell them apart.
Same Letters, Different Tool
Why this trips investors up
Search for “DST” and you will get results for two unrelated strategies. A Delaware Statutory Trust is the vehicle real-estate investors use to complete a 1031 exchange into passive property. A Deferred Sales Trust is a completely separate installment-sale strategy that does not involve a 1031 exchange at all. Confusing the two can send you down the wrong path, so it is worth thirty seconds to separate them.
The 1031 Vehicle
Delaware Statutory Trust: the one this site is about
A Delaware Statutory Trust holds institutional-grade real estate and lets many investors each own a fractional, passive beneficial interest. Because the IRS treats that interest as “like-kind” real property (under Revenue Ruling 2004-86), it qualifies as replacement property in a 1031 exchange. That is the whole reason it exists for real-estate investors. We cover it in depth on Delaware Statutory Trusts and the 1031 exchange guide.
The Installment-Sale Strategy
Deferred Sales Trust: a different animal
A Deferred Sales Trust is built on the installment-sale rules of IRC Section 453, not Section 1031. In simplified terms, you sell your asset to a trust, and the trust pays you over time; tax on the gain is spread across those installment payments instead of being due all at once. Unlike a Delaware Statutory Trust, it is not limited to real estate. It can be used for businesses or other appreciated assets. It is also more complex, less standardized, and has drawn IRS scrutiny, so it is typically set up with specialized legal and tax counsel.
Side By Side
Quick comparison
| Delaware Statutory Trust | Deferred Sales Trust | |
|---|---|---|
| Tax code | Section 1031 (like-kind exchange), Rev. Rul. 2004-86 | Section 453 (installment sale) |
| Is it a 1031 exchange? | Yes | No |
| How tax is deferred | Exchange proceeds into like-kind real estate | Spread the gain across installment payments |
| What you end up holding | A beneficial interest in real estate | A payment stream / note from the trust |
| Asset types | Real estate only | Real estate, businesses, other assets |
| Complexity & scrutiny | Well-established, IRS-recognized | More complex; has drawn IRS attention |
| Best suited to | Investors doing a 1031 who want passive real estate | Sellers who cannot or prefer not to do a 1031 |
Which One
Which applies to you?
If you are selling investment real estate and want to defer the tax by staying invested in real estate, the Delaware Statutory Trust route is what nearly everyone on this site is researching. Start with DST vs. other 1031 options. If a 1031 is off the table, for example because you are selling a business or you missed the exchange window, a Deferred Sales Trust is one of the alternatives worth discussing with a qualified advisor. Either way, the structures are involved enough that professional guidance matters.
FAQ
Common questions
Are a Deferred Sales Trust and a Delaware Statutory Trust the same thing?
No. They only share the “DST” acronym. A Delaware Statutory Trust is a 1031 exchange vehicle for real estate; a Deferred Sales Trust is a separate installment-sale strategy under IRC Section 453.
Is a Deferred Sales Trust a 1031 exchange?
No. It does not use like-kind exchange rules. It defers tax by spreading the gain over installment payments instead of reinvesting proceeds into real estate.
Which one is better?
They solve different problems. If you want to stay invested in real estate and qualify for a 1031, a Delaware Statutory Trust is the common path. A Deferred Sales Trust is considered when a 1031 is not an option. This is educational, not advice. Confirm your situation with a licensed professional.
Not sure which “DST” you need?
Tell us about your sale and we will point you to the right licensed professional. Educational only, no cost, no obligation.
Continue learning
Start with the complete DST & 1031 Exchange Guide, or explore a related topic:
Educational purposes only. 1031InvestorGuide is not an offer to sell or a solicitation to buy any security, and is not tax, legal, or investment advice. Delaware Statutory Trusts are available only to accredited investors through licensed broker-dealers. Past performance is not indicative of future results. Consult your own advisors.
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