Accredited investor status is a legal threshold, not a marketing label, and it determines which private real estate offerings, including most DST interests, an investor is even allowed to purchase. The SEC sets the qualifying criteria, and they haven't been reduced to a simple net worth cutoff most people assume they are; there are several distinct paths to qualifying, and only one of them is income-based. Understanding which path applies matters before shopping for a specific DST offering, since the wrong assumption can waste time on a deal an investor doesn't yet qualify for.
The Actual Qualifying Thresholds
An individual qualifies as accredited by earning income over $200,000 in each of the two most recent years, or $300,000 combined with a spouse, with a reasonable expectation of the same in the current year. The alternative path is net worth exceeding $1 million, excluding the value of a primary residence, whether held individually or jointly with a spouse. Meeting either path independently is enough; an investor doesn't need both.
Primary Residence Is Explicitly Excluded
A common mistake is including home equity when calculating net worth for accreditation purposes. The SEC's rule specifically excludes the value of a primary residence, along with any mortgage debt against it up to the home's value, from the net worth calculation. An investor whose net worth looks well above the threshold on paper can fall short once the primary home is backed out.
How Verification Actually Works
Self-certifying accredited status used to be common, but most reputable DST sponsors and broker-dealers now require third-party verification, typically through a letter from a CPA, attorney, or registered investment advisor, or through documentation like tax returns and account statements reviewed by a verification service. This isn't optional paperwork; a sponsor that skips verification is taking on regulatory risk that a serious offering generally won't accept. Expect to provide two years of tax returns or current account statements to whichever professional signs the verification letter, and expect the process to take a few days rather than happening instantly at the click of a checkbox.
Why This Gate Exists For DST Offerings
DST interests are sold as private placements under Regulation D exemptions, which allow the offering to skip the disclosure requirements of a public securities registration in exchange for limiting the buyer pool to accredited investors presumed able to evaluate the risk and absorb a loss. That's the tradeoff behind the accreditation requirement: less regulatory disclosure in exchange for restricted access, not an arbitrary hurdle unrelated to the offering itself. It also means the offering documents an accredited investor receives are typically less standardized than a public prospectus, which puts more weight on reading them carefully rather than assuming they follow a uniform format across sponsors.
What A Non-Accredited Investor Can Still Do In A 1031 Exchange
An investor who doesn't currently meet the accreditation thresholds isn't shut out of a 1031 exchange; direct replacement property, including a smaller rental or a fractional tenant-in-common interest structured outside Regulation D rules, remains available. Accreditation only gates the specific DST and syndicated fund offerings, not the exchange itself or the tax deferral it provides. An owner close to qualifying, particularly on the income path, may also find it worth timing a sale for a year when accreditation is confirmed, since that opens the passive DST route rather than requiring active management of the replacement property.
Common Questions
What income level makes someone an accredited investor?
Individual income over $200,000, or $300,000 combined with a spouse, in each of the two most recent years, with a reasonable expectation of the same this year.
Does home equity count toward the net worth test for accreditation?
No. The SEC's net worth calculation specifically excludes the value of a primary residence and associated mortgage debt up to that value.
How is accredited investor status verified for a DST purchase?
Typically through a written verification letter from a CPA, attorney, or registered investment advisor, or through documentation like tax returns reviewed by a third-party verification service.
Why do DST offerings require accredited investor status?
DST interests are sold as private placements under securities exemptions that trade reduced public disclosure for restricting the buyer pool to investors presumed able to evaluate the risk.
Can a non-accredited investor still do a 1031 exchange?
Yes. Accreditation only restricts access to specific private offerings like DSTs; direct replacement property remains available to any exchange investor regardless of accreditation status.