DST vs Opportunity Zone Fund: What Agents Should Know Before a Seller Picks One

Sellers with a big gain on investment property often come to the listing appointment having heard two terms: “DST” and “Opportunity Zone.” Both can defer tax, both are usually passive investments run by a sponsor, and both have deadlines measured from the closing date. They work very differently. This guide explains the difference in plain terms so you can set expectations before the client meets their CPA and advisor.

It’s part of our series for agents. The hub is OZ talking points for your next listing appointment. To compare the three paths with your client’s numbers, use the 1031 vs DST vs Opportunity Zone calculator.

The short version

• DST: a Delaware statutory trust interest can be 1031 replacement property. The seller reinvests the full proceeds in like-kind real estate and defers the gain under IRC §1031.
• Opportunity Zone fund: the seller invests only the capital gain, from any kind of sale, in a qualified opportunity fund within 180 days under IRC §1400Z-2. The fund invests in Opportunity Zone property.
• They don’t stack on the same gain. Gain deferred by a 1031 isn’t recognized, so it can’t also go into an OZ fund. Gain the 1031 doesn’t defer, such as cash boot, can.

How a DST works for a 1031 seller

Rev. Rul. 2004-86 says a taxpayer can exchange real property for an interest in a Delaware statutory trust that holds real estate, without recognizing gain under §1031, if the trust is set up the way the ruling describes. The ruling’s trust is tightly limited. The trustee may not accept additional contributions, may not renegotiate the lease or the debt, may not sell the property and buy new property, and may make only minor non-structural modifications.

What that means for your seller:

• The usual 1031 clock applies. Replacement property must be identified within 45 days and received within 180 days (§1031(a)(3)). DST interests are often used because they can be identified quickly. See the 1031 exchange 45-day rule.
• The whole sale goes in. For a fully tax-deferred exchange, proceeds not reinvested are boot and taxed.
• Passive and fixed. The seller gives up control, and the sponsor can’t change course much once the offering closes.

How an Opportunity Zone fund works for a seller

A qualified opportunity fund is a corporation or partnership that self-certifies on Form 8996 and holds at least 90% of its assets in Opportunity Zone property. The investor elects deferral and reports the investment on Form 8997.

What that means for your seller:

• Only the gain goes in. The seller can keep the return of their basis. The gain can come from real estate, stock or a business sale.
• 180 days from the sale. Count the days with the 180-day deadline calculator, and see the 180-day clock for sellers.
• Timing matters right now. Under Public Law 119-21, investments made after December 31, 2026 get the OZ 2.0 terms: the invested gain is deferred until the earlier of a sale or five years after the investment, the basis rises 10% after five years (30% for a qualified rural fund), and appreciation on an investment held at least 10 years can be excluded. An investment made on or before December 31, 2026 stays on the original rules, with the deferred gain recognized on December 31, 2026. See investing in an Opportunity Zone in January 2027.
• The property doesn’t need to be in a zone. It’s the fund’s investments that must be in Opportunity Zones, not the seller’s property.

Side by side

What to say at the listing appointment

• “There are two different tools here. A DST keeps you in a 1031 exchange, so the whole sale goes into real estate. An Opportunity Zone fund takes just the gain, and the rules change on January 1, 2027.”
• “Both clocks start at closing, so let’s get your CPA involved before we set a closing date.”
• “I can show you the basics, but which one fits is a question for your CPA and a licensed financial advisor.”

Avoid promising a tax result, naming a specific DST or fund, or saying a DST and an OZ fund can be combined on the same gain. See what to know about combining a 1031 and an Opportunity Zone and can you 1031 into an Opportunity Zone?.

Related reading

• Avoiding capital gains tax on real estate
• Depreciation recapture for selling landlords
• Depreciation recapture calculator (§1245, §1250 and NIIT)
• OZ talking points for agents (series hub)

Sources: IRC §1031; Rev. Rul. 2004-86; IRC §1400Z-2; Public Law 119-21.

Not tax advice.