A Delaware Statutory Trust is considered a separate legal entity formed as a trust under Delaware Law. Classified as a grantor trust, which is a disregarded entity under federal income tax law, any investor that purchases an interest in the trust will also acquire an undivided interest in the asset(s) held by the DST, if the DST is structured to comply with IRS guidance. As detailed in Revenue Ruling 2004-86, the DST cannot purchase additional assets, accept additional contributions of assets, renegotiate loan terms, enter in or renegotiate leases, make structural changes or sell or exchange property to reinvest proceeds. This allows for the investor to use the beneficial interest in a Delaware Statutory Trust as replacement property to complete their 1031 exchange.
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