Glossary Of 1031 Exchange Delaware Statutory Trust (DST) Key Terms
1031 Exchange
Invest your 1031 exchange proceeds in turnkey and recession-resilient investments with annualized cash flows of 5.75% to 6.00%+ paid out monthly. Income is backed by long-term leases to Fortune 500 tenants in the necessity retail and healthcare space.
180-Day Exchange Period
The total maximum time limit, beginning the day the Relinquished Property closes, in which the investor must acquire all Replacement Properties to complete the 1031 exchange.
200% Rule
An identification rule in a 1031 exchange that allows an investor to identify an unlimited number of Replacement Properties, provided their combined Fair Market Value (FMV) does not exceed 200% of the value of the Relinquished Property.
45-Day Identification Period
The strict timeline beginning the day the Relinquished Property closes, by which the investor must identify potential Replacement Properties to the Qualified Intermediary in writing.
721 Exchange
A tax-deferred transaction (IRC Section 721) where a real estate owner contributes appreciated property to a UPREIT or DownREIT in exchange for Operating Partnership (OP) Units.
Accredited Investor
An investor, defined by the SEC, who is eligible to participate in private securities offerings, such as non-traded REITs or DSTs, based on specific income or net worth requirements.
Adjusted Funds From Operations (AFFO)
A financial metric used primarily by REIT analysts, calculated as FFO minus capital expenditures, maintenance, and certain non-cash items. It is considered a better measure of a REIT's ability to pay dividends.
Basis (Cost Basis)
The original cost of a property plus the cost of improvements, minus any accumulated depreciation. It is used to calculate the taxable capital gain or loss upon sale.
Basis Step-Up
A key benefit of QOF investing: after holding the investment for 10 years, the investor's basis is stepped up to the fair market value, resulting in zero capital gains tax on the appreciation of the QOF investment itself.
Boot
Any non-like-kind property, cash, or net debt reduction received by the Exchanger in a 1031 exchange. Boot is taxable and results in a partial 1031 exchange or recognized gain.
Capital Gains Tax Deferral
The main benefit of a QOF, allowing an investor to defer tax on prior realized capital gains by reinvesting them into a QOF within 180 days.
Capitalization Rate (Cap Rate)
A real estate valuation metric calculated by dividing a property's Net Operating Income (NOI) by its purchase price. It is used to estimate an investor's potential rate of return.
Constructive Receipt
An IRS rule stating that income not actually received is still taxable if it is fully within the taxpayer's control. A Qualified Intermediary prevents this for 1031 exchange proceeds.
Delaware Statutory Trust (DST)
A legal entity that holds title to investment property, allowing investors to own a fractional beneficial interest in the property. DSTs are commonly used as like-kind replacement property in a 1031 exchange.
Depreciation Recapture
The portion of gain from a property sale that represents the total depreciation deductions previously claimed. This portion of the gain is generally taxed at a higher rate (up to 25%) than the long-term capital gains rate.
Division Order
A document that authorizes a purchaser (like an oil company) to distribute proceeds from the sale of oil or gas to the rightful owners of royalty income.
DST Fractional Ownership
The beneficial interest held by an individual investor in a DST property, which is treated as direct ownership of real property for 1031 exchange purposes.
DST Sponsor
The company responsible for acquiring, structuring, managing, and offering the DST property to investors. Due diligence on the sponsor is crucial before investment.
Exchange Accommodation Titleholder (EAT)
A required, neutral third party used in a Reverse 1031 Exchange to temporarily hold title to either the Relinquished or Replacement property until the exchange can be completed within the 180-day limit.
Mineral Rights
The ownership interest in the oil, gas, and other minerals beneath a tract of land. This interest can be severed from the surface rights and bought or sold separately.
Oil and Gas Royalties
Payments made to the mineral rights owner based on a percentage of the gross production from an oil or gas well. This represents the primary form of royalty income from the investment.
Opportunity Zones (OZ)
Geographically defined low-income areas designated by the government where new investments, under certain conditions, may be eligible for preferential tax treatment.
OP Unit
An ownership interest in the Operating Partnership of a UPREIT, received in a 721 exchange. These units can be held indefinitely, deferring tax, or exchanged for REIT stock (a typically taxable event).
Passive Real Estate
An investment status where the investor has no management responsibilities for the property. DSTs are structured to meet this requirement, making them ideal for investors seeking hands-off investing.
Private REIT
A non-traded REIT that is not publicly listed on a stock exchange. These typically offer higher, non-correlated returns but are less liquid and often only available to Accredited Investors.
Property Consolidation
The process, often executed via a 721 exchange, where owners combine multiple individual properties into a single, larger, more diversified entity like a UPREIT's Operating Partnership.
Qualified Intermediary (QI)
A required, unrelated third-party entity or accommodator that facilitates the exchange, holding the sale proceeds to prevent Constructive Receipt and maintain the exchange's tax-deferred status.
Qualified Opportunity Fund (QOF)
An investment vehicle, usually structured as a partnership or corporation, that holds at least 90% of its assets in Qualified Opportunity Zone Property. Investors use a QOF to defer and potentially reduce capital gains.
Qualified Use Test
The requirement in a 1031 exchange that both the relinquished and replacement properties must be held either for investment or for productive use in a trade or business (not personal use).
REIT
A company that owns and typically operates income-producing real estate. REITs must distribute at least 90% of their taxable income to shareholders, offering high dividend yields and allowing individuals to invest in commercial real estate.
REIT Dividend Yield
A key performance metric calculated by dividing the total annual dividend payments by the REIT's current share price. It is often a focus when comparing REIT stock investments for passive income.
Relinquished Property
The "old" investment property sold by the taxpayer at the beginning of the 1031 exchange process.
Replacement Property
The "new" like-kind investment property acquired by the taxpayer to complete the 1031 exchange and defer the capital gain.
Reverse 1031 Exchange
A type of exchange where the Replacement Property is purchased first and the Relinquished Property is sold second. It requires the use of an Exchange Accommodation Titleholder (EAT).
Surface Rights
The ownership interest in the surface of the land, distinct from the mineral rights below. The mineral rights owner typically has the implied right to use the surface to access the minerals.
Triple Net Lease (NNN)
A lease structure, common in DST and single-tenant commercial properties, where the tenant is responsible for paying all three major expenses: property taxes, insurance, and maintenance. This results in a truly passive investment for the landlord.
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The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the Sponsor’s Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney.
There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potentially adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. 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. Because investor situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.
Securities offered through Aurora Securities, Inc. (ASI), member FINRA/SIPC. Baker 1031 Properties (Baker 1031) is independent of ASI. To access Aurora Securities’ Form Customer Relationship Summary (CRS), please click HERE. Baker 1031 Properties, Jerry Baker, and (ASI) do not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.
Client examples are hypothetical and for illustration purposes only. Individual results may vary.
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¹The statement that "Over 30% of all experienced real estate investors work with Jerry on their 1031 exchange" is a market share estimate derived from an analysis of third-party market data as of October 2025, representing the proportional relationship between the Baker 1031 Investment investor database and an estimated total market of active real estate investors; this estimate is based on Crexi reporting a 2,000,000 user base, 80% of whom are assumed not to be agents/brokers, and 42% of activity dedicated to investment sales, from which a conservative assumption excludes 15.7% as non-investor service providers (e.g., appraisers, lenders), resulting in an estimated active investor market of 566,664; as the Baker 1031 Properties database comprises over 170,000 individuals or entities, this figure represents 30.00% of the estimated market. Important Compliance Disclosure: The figures and calculations provided constitute a market share estimate based on unverified third-party data and internal assumptions utilized to define the estimated market; Baker 1031 Properties has not independently verified the accuracy of the underlying data, and the term "experienced real estate investors" is defined exclusively by this methodology and its internal assumptions. This communication is not a guarantee of future results, a testimonial, or a statement of performance for any investment product or service, and its accuracy is subject to the inherent limitations of the underlying data and the validity of the internal exclusion assumptions.