Leveraging a 721 Exchange

A 721 exchange exercises a tax provision that allows for the non-recognition of gains when assets are contributed to a partnership in exchange for partnership interests. Leveraging an UPREIT, income-producing property owners may defer taxation of capital gain until partnership interests are redeemed for REIT shares or cash.

Shares of the REIT can typically be liquidated at designed times, in accordance with the terms of the REIT.

EXPLORE THE 721 EXCHANGE/UPREIT RESOURCE CENTER

What is a REIT?

REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. These real estate companies have to meet a number of requirements to qualify as REITs. Some REITs trade on major stock exchanges, and they offer a number of potential benefits to investors.


What is an UPREIT?

REITs often hold their portfolio of real estate through an operating partnership, which structure is known as an Umbrella Partnership Real Estate Investment Trust, or UPREIT. This allows holders of real estate to exchange property for economic interests in the REIT in the form of OP Units of the operating partnership by contributing that property via a 721 exchange.

REIT

What is a 721 Exchange?

Internal Revenue Code (IRC) section 721 is a provision of the U.S. tax code that allows for tax-free transfers of income-producing real property to a real estate investment trust’s (REIT’s) operating partnership in exchange for ownership interests in the partnership.

Exchange-building

How a 721 Exchange Works

A 721 exchange allows investors to contribute ownership in real property to the operating partnership of a REIT – the acquisition and ownership entity of the REIT – in exchange for units of limited partnership interests in operating partnership (OP Units).

Circle-Icon-Number-1

Sell your property

One-Building-Icon-Block
Circle-Icon-Number-2

Money goes into a DST for 2 years

Four-Building-Icon-Block
Circle-Icon-Number-3

REIT acquires the DST & investors receive OP units

All-Building-Icon-Block
Circle-Icon-Number-4

12 months after DST is acquired...

• Monthly Liquidity
• Exit at NAV

Check-Icon-2 Monthly income, monthly liquidity

X-Icon Your exchange journey ends



Hypothetical Property Sale Example

Hypothetical-Property-Sale-Example-2

 

https://taxfoundation.org/state/Illinois

This is not intended as tax advice. Prospective investors should consult with their own tax advisor.

*State tax percentages vary by state and does not take into account tax on gain associated with depreciation.

Potential Benefits of a 721 Exchange

check_image

Diversification

Access to an existing and growing portfolio of professionally managed, institutional-quality real estate diversified by asset classes and geography.

check_image

Income

An operating partnership that intends to provide regular income through an actively managed portfolio of income-producing properties. Distributions are not guaranteed and there is no guarantee that objectives will be met.

check_image

Capital Appreciation Investment Returns

Holders of limited partnership interests may experience appreciation of their invested capital if the value of the real properties in the portfolio rises.

check_image

Tax & Estate Planning

Heirs to limited partners may receive a step-up in the tax basis of their limited partnership interests, effectively eliminating the previously deferred U.S. Federal Income Tax on Capital Gains. Heirs have the flexibility to make individual decisions in respect to the sale of their inherited interests, whereas traditional heirs of investment property may require collective decision making.

check_image

Flexibility & Self Directed Liquidity

A redemption program for limited partnership interests may provide more liquidity than other forms of real property ownership and may allow owners to redeem interests in whole or in part, potentially managing periodic taxable gain recognition in alignment with specific financial goals and objectives.


1031 DST vs. 721 Exchange

1031-721-Differences-5

 

Inland’s 721 Exchange/UPREIT Resource Center

Defer & Diversify with a 721 Exchange/UPREIT Transaction

Discover this little-known IRS Tax Mitigation Strategy

Section 721 of the Internal Revenue Code also allows for the deferral of capital gains by contributing real property for interests in an operating partnership of a REIT.

DOWNLOAD HERE
erit-exchange-ebook
https://5100758.fs1.hubspotusercontent-na1.net/hubfs/5100758/banner-compressed.jpg

Understanding 1031 and 721 Exchanges

Which Strategy is Right for Your Clients? For accredited investors, mastering

Read Blog
https://5100758.fs1.hubspotusercontent-na1.net/hubfs/5100758/Stock%20images/Tax%20Law%20-%20Folder%20Register%20Name%20in%20Directory.%20Colored%2c%20Blurred%20Image.%20Closeup%20View..jpeg

Unlocking the Potential of the 721 Exchange

As you know, many who own investment property are always on the lookout for

Read Blog
https://5100758.fs1.hubspotusercontent-na1.net/hubfs/5100758/woman%20investment%20consultant%20analyzing%20company%20annual%20financial%20report%20balance%20sheet%20statement%20working%20with%20documents%20graphs.%20Stock%20market%2c%20office%2c%20tax%2c%20education%20concept.%20Hands%20with%20charts%20papers-1.jpeg

Navigating Tax-Advantaged Real Estate Investment Strategies When to Select a 1031 or 721 Exchange for Your Clients

In commercial real estate investing, two tax-advantaged strategies have

Read Blog

Connect with Inland Investments

GET STARTED

This communication is not intended as tax advice.

This website is neither an offer to sell nor a solicitation of an offer to buy any security which can be made only by a prospectus or offering memorandum, which has been filed or registered with appropriate state and federal regulatory agencies, and sold only by broker dealers and registered investment advisors authorized to do so.

The Inland name and logo are registered trademarks being used under license. "Inland" refers to some or all of the entities that are part of The Inland Real Estate Group of Companies, Inc. which is comprised of a group of independent legal entities some of which may be affiliates, share some common ownership or have been sponsored and managed by such entities or subsidiaries thereof including the Inland Real Estate Investment Corporation (Inland Investments) and Inland Securities Corporation. Inland Securities Corporation, member FINRA/SIPC, is dealer manager and placement agent for programs sponsored by Inland Investments and Inland Private Capital, respectively. For more information on Inland Securities Corporation, visit FINRA BrokerCheck.