A Delaware Statutory Trust lets you finish a §1031 exchange with a fractional interest in institutional property — no tenants, no toilets. The catch is debt: to avoid mortgage boot you must replace at least the debt you retired. This tool sizes the DST purchase, the debt gap and the income it produces.
The mortgage paid off from sale proceeds. This is what must be replaced.
Gross yield on total DST value before debt service.
| Sale Price | Debt Retired | Equity | DST Purchase @ LTV | Debt Gap | Annual Cash Flow |
|---|---|---|---|---|---|
| $1,000,000 | $400,000 | $600,000 | $1,200,000 @ 50% | +$200,000 | $21,000 |
| $500,000 | $0 | $500,000 | $1,250,000 @ 60% | +$750,000 | $12,500 |
| $2,000,000 | $900,000 | $1,100,000 | $2,444,444 @ 55% | +$444,444 | $36,056 |
Cash flow is gross DST yield on total value minus interest on the DST loan. Row 1 and row 3 use the calculator defaults (5.5% loan, 4.5% yield); row 2 uses a 5% loan and 4% yield. Exit equity assumes 2% annual appreciation and interest-only debt over the hold period.
Section 1031 defers gain when you exchange real property held for investment or business. To fully defer, two things must be replaced: the equity you took out and the debt you retired. Equity you keep is called cash boot. Debt you do not replace is called mortgage boot. Both are taxable, though only to the extent of your realized gain.
A DST is a fractional interest in a single property, held by a trustee. You cannot personally sign a mortgage on a DST, so the trust itself carries non-recourse debt. To hit a target debt level, you choose the DST's leverage and size your investment accordingly:
DST purchase = equity ÷ (1 − LTV), and new debt = purchase − equity.
If the resulting debt is less than the loan you retired, the shortfall is mortgage boot. You can cure it by adding cash to the DST investment (raising equity and lowering required debt) — but only up to the point where the trust's leverage allows.
Once the DST is closed, the trustee cannot refinance, cannot raise new capital, cannot renegotiate the master lease, and cannot make significant capital improvements. The property is locked. If a major tenant leaves, the trust's only remedies are the reserves and master-lease structure. That is why DST sponsors underwrite to a long lease and why a DST is usually a hold-to-exit vehicle, not an operating business.
Identifying a DST does not pause the exchange timeline. You have 45 days from closing to identify up to three replacement properties (or any number if you stay under the 200% rule), and 180 days to close. DST sponsors are popular precisely because they can close quickly once identified.
Because the purchase formula divides equity by (1 − LTV), small changes in leverage move the DST size a lot. At 50% LTV, $600,000 of equity buys $1,200,000 of property; at 65% it buys $1,714,000. That extra size amplifies cash flow, but it also amplifies the interest expense and the risk that the property's income cannot cover debt service in a downturn.
The safer construction is to size the DST to the debt you actually retired. If you had a $400,000 loan on a $1,000,000 property (40% LTV) and you buy a 50% LTV DST, you have voluntarily added $200,000 of leverage that §1031 never required. That is a business decision, not a tax one — and it should be made deliberately, with the property's debt-service coverage ratio in view.
A direct replacement property gives you control, the ability to refinance later, depreciation you can manage, and the option to do another exchange or a §121 conversion down the road. A DST gives you passive income and a fast close, but you surrender all of that. You also lose the ability to take a step-up in basis through a §721 UPREIT roll-up at exit, which some sponsors offer but which is a separate transaction with its own risks.
Fees are the other trade-off. DST offerings typically carry a load — selling commissions, dealer-manager fees, acquisition fees and reserves — that can run several percent of the invested amount. Compare the net yield after fees against what the same equity would earn in a direct purchase before deciding the passivity is worth it.
⚠️ Important: This calculator models the debt-replacement arithmetic of a DST purchase and projects cash flow and exit equity under simplified assumptions (interest-only debt, 2% annual appreciation, no fees). It does not compute boot taxation, depreciation, state tax, or sponsor-specific fees. DSTs are securities offerings — review the private placement memorandum and consult a tax adviser before investing.