The short answer
Keep or buy a rental if you still want the work, can fund a vacancy or a new roof from savings, and value the right to sell or refinance whenever you choose. Move into DST interests through a 1031 exchange if the work is the problem: the income comes without tenants or repairs, but it is not guaranteed, the money is locked up until the sponsor sells, and you give up every decision. Heirs get a basis step-up under section 1014 either way, so the deciding factors in retirement are effort, liquidity and concentration, not the estate tax result. Run your own numbers with your CPA.
At a glance
| Basis at death | Fair market value at death for both a rental and a DST interest |
|---|---|
| Accredited investor test | Net worth over $1,000,000 excluding your home, or income over $200,000 single / $300,000 joint |
| DST decisions | None: no new leases, refinancing or major work by the trustee |
| DST liquidity | Held until the sponsor sells; no public market |
| Rental liquidity | Sell or refinance on your schedule, subject to the market |
| Suspended passive losses | Released on a fully taxable disposition of the entire interest, not on an exchange |
Compare net income after the costs a retiree actually pays, not the rent on the lease
The rental's headline is gross rent; what reaches you is rent less vacancy, property tax, insurance, repairs and, once you stop doing the work yourself, a manager's fee. Publication 527 lists these as deductible rental expenses, which reduces the tax on them but does not make them free.
Hypothetical, round assumptions rather than market data: a $1,000,000 house owned free and clear rents for $60,000 a year. Allow $3,000 for vacancy, $18,000 for tax, insurance and repairs, and a manager at 8% of collected rent, about $4,560. Net before income tax is about $34,440, or 3.4% of the value, and one bad year with a roof or an eviction can cut it in half.
A DST's distributions are net of the sponsor's management, fees and reserves, and are described in each offering's memorandum, not guaranteed. Compare your rental's realistic net with the stated rate of the specific offering, its fees, and the risk that it falls. Our page on DST yield versus total return explains why the stated rate is only part of the comparison.
Effort and control are the real trade: a DST removes both
Under Rev. Rul. 2004-86, a DST's trustee cannot sign new leases except on a tenant's bankruptcy or insolvency, cannot refinance and may make only minor non-structural repairs. You receive income and statements and do nothing else, which is the attraction for an owner who has spent decades on calls about leaks.
The same limits mean you cannot fix a problem yourself, choose to sell when you need cash, or decide to pay down debt. With a rental, every decision is yours, including the ones you would rather hand to children when health changes.
If you like the property and dislike the work, a professional manager on your own rental keeps control at the cost of the fee above. If you dislike both, see our tired landlord exit guide.
Liquidity and concentration: a rental can be sold, a DST cannot, but one house is one bet
A rental can be listed or refinanced when you need money for care or a gift, although a sale takes months and is taxed unless exchanged. DST interests are private placements without a public market; you wait for the sponsor's sale, which our page on DST illiquidity and exits covers.
Concentration runs the other way. A retiree whose net worth is mostly one rental depends on one tenant, one roof and one local market. The same equity spread across several trusts holds interests in larger properties in different sectors and regions, though each trust still has its own leverage and sponsor risk.
A reasonable middle path for many retirees is to keep cash and liquid savings outside real estate for the years when a DST cannot be sold, and decide on the real estate portion separately.
Think about who takes over if you cannot. A rental needs someone to make decisions during an illness, which usually means a power of attorney, a trustee or an adult child stepping in. DST interests need only someone to receive statements and file the tax return, which is a much lighter task to hand on.
Taxes in retirement: the exchange defers everything, and the step-up arrives either way
Selling the rental for cash triggers tax on depreciation at up to 25%, capital gain at up to 20% and possibly the 3.8% net investment income tax, as our rental sale tax guide shows. Exchanging into DSTs defers all of it and carries your basis into the trust interests.
At death, section 1014 gives heirs a basis equal to fair market value whether they inherit the house or the DST interests, so deferred gain held until death is not taxed to them. The difference is what they receive: a house they can sell at once, or interests they hold until the sponsor sells. Our page on heirs and DSTs explains their options.
One loss rule differs. Under section 469(g), suspended passive losses on the rental are released when you dispose of your entire interest in a fully taxable sale; an exchange does not release them, as our answer on suspended passive losses explains.
Eligibility and the decision: who can buy a DST, and four questions that settle it
DST interests are generally offered under Regulation D to accredited investors. Under 17 CFR 230.501(a), an individual qualifies with net worth over $1,000,000, alone or with a spouse, excluding the primary residence, or income over $200,000, or $300,000 jointly, in each of the last two years. Many retirees qualify on net worth even with modest income.
Then ask four questions. Do you still want to manage, or pay someone to? Can you leave this money untouched for the sponsor's hold? Is too much of your net worth in one property? Do your heirs want a house or a passive interest?
- Want the work and the control: keep or buy the rental.
- Want income without the work and can wait for liquidity: exchange into several DSTs.
- Want both: exchange part into DSTs and keep one rental you enjoy owning, or see retiring and selling the portfolio.
Related questions
Are DST distributions safer than rent from my own tenant?
Not necessarily. They depend on the trust's tenants, debt and expenses, can be reduced or suspended, and you cannot step in to fix a problem. They are more diversified than one house only if you spread money across several trusts.
Does my home count toward the $1,000,000 net worth test?
No. 17 CFR 230.501(a)(5) excludes the primary residence as an asset, and mortgage debt on it is generally excluded as a liability up to its value.
Do my heirs lose the step-up if I move into a DST?
No. Section 1014 applies to property acquired from a decedent, and a DST interest is property like a deed. Heirs take fair market value basis at your death either way.
Can I sell a DST interest if I need money for long-term care?
Only if a buyer can be found, usually at a discount, and some trusts require sponsor approval. Plan care funding from liquid assets rather than counting on an early DST sale.
Will I lose my suspended rental losses by exchanging?
No. Section 469(b) carries a disallowed passive loss forward to the next year, so it stays available against passive income. It is released in full only when you dispose of the entire interest in a fully taxable transaction under section 469(g), which an exchange is not.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- Rev. Rul. 2004-86, Delaware statutory trust interests
- 26 U.S.C. section 1014, basis of property acquired from a decedent
- 26 U.S.C. section 469, passive activity losses
- 17 CFR 230.501, Regulation D definitions (accredited investor)
- IRS Publication 527, Residential Rental Property
- 26 U.S.C. section 1031, like-kind exchanges