Investors & landlords

Yes, here are some key considerations:

Return of Capital & Basis Adjustment

1. Since the $20,000 distribution is classified as ROC, it generally reduces your basis in the DST investment rather than being treated as taxable income. 
2. If your basis reaches zero, any further ROC distributions could be taxable as capital gains.

1031 Exchange & Deferred Gain

1. A DST investment in a 1031 exchange is structured to defer capital gains tax until the property is sold.
2. The deferred gain remains embedded in the investment, meaning you typically don’t recognize gain until the DST property is sold.
3. If the ROC distributions are simply reducing your basis, you likely don’t need to report a gain at this stage.

IRS Reporting & Grantor Letter

1. DSTs issue Grantor Letters instead of K-1s or 1099s, detailing your share of rental income and expenses.
2. If the Grantor Letter doesn’t mention ROC, but your account statement does, it’s worth confirming with the DST sponsor how they are reporting it to the IRS.
3. You may need to track basis adjustments separately, as TurboTax suggested