DST Tax Documents: What to Expect at Tax Time

As a DST investor, tax reporting works a little differently than it does with a partnership, LLC, or brokerage account, and once you know what to expect, it’s simple.

You’ll Receive a Grantor Letter, Not a Schedule K-1

A DST used as a 1031 exchange replacement property is typically structured as a grantor trust for federal tax purposes. Because of that, you’ll receive a grantor letter, an annual statement showing your share of the trust’s income and expenses, in place of a Schedule K-1.

Some sponsors call this same document a “substitute Form 1099” instead of a grantor letter — same document, different name. Every sponsor formats it a little differently since there’s no standard IRS layout for this document.

What’s in Your Grantor Letter

Your grantor letter shows your share of:

• Rental income and operating expenses
• Mortgage interest
• Depreciation (sometimes provided as a separate schedule)
• Cash distributions
• State-specific tax information

Your tax advisor uses these figures to complete Schedule E of your Form 1040.

A Potential Benefit Worth Watching: Your Taxable Income May Be Lower Than Your Distribution

Depreciation and other deductions typically shelter part of your DST income from tax, so the amount you report as taxable income may be lower than the cash you actually received. For example, $25,000 in distributions during the year doesn’t necessarily mean $25,000 is taxable. Your grantor letter gives your tax advisor the figures to work out the difference, if any.

When to Expect Your Grantor Letter

You’ll usually receive your regular 1099s from your bank or brokerage first, with your DST grantor letter arriving afterward — sponsors need time to close out the trust’s books for the year. If you’re still waiting, check your investor portal, contact the sponsor directly, or reach out to your broker-dealer or registered representative for help. If you hold more than one DST, expect a separate grantor letter from each sponsor.

If your grantor letter is running close to the filing deadline, ask your tax advisor about filing for a standard extension, this is a routine step many investors use rather than filing before they have complete information.

What to Give Your Tax Advisor

Provide your tax advisor with the grantor letter for every DST you own, along with your original 1031 exchange records. Those records matter — your tax advisor uses them to establish your basis, which determines your depreciation and other tax items tied to the DST.

If You Also Receive a Schedule K-1

If a Schedule K-1 shows up alongside your DST paperwork, simply confirm the source with the sponsor or your tax advisor — it likely relates to a different investment, or that entity may use a different tax structure than your DST.

This article is provided for general educational purposes only and does not constitute tax, legal, or investment advice. Tax reporting and tax treatment can vary depending on the structure of the investment and the investor’s individual circumstances. Consult your tax advisor regarding your individual tax situation. NexTrend Securities is not a tax advisor and does not provide tax advice.