Section 721 Exchanges: The Advisor's Guide to UPREIT Strategies for Real Estate Investors
A practical resource for advisors navigating two of the most underused tax deferral strategies in real estate planning.
Most advisors are fluent in Section 1031. Fewer are fluent in what comes next.
Section 721 of the Internal Revenue Code allows real property owners to contribute appreciated real estate to a Real Estate Investment Trust's operating partnership in exchange for OP units — deferring capital gains, diversifying a concentrated real estate position, and transitioning entirely out of active property management. No sale. No immediate tax event.
The strategy applies in two distinct scenarios
Direct Contribution
A client who owns appreciated real property contributes it directly to a REIT operating partnership for OP units — deferring capital gains without a 1031 exchange, no exchange timeline, and no qualified intermediary required.
The 1031-to-721 Sequence
A client nearing the end of a DST or other 1031 replacement property hold period contributes into a REIT operating partnership rather than initiating another exchange. It is the natural final destination for investors who have been deferring through 1031s and are ready for a permanent passive position.
Two different client situations. One structure most advisors have not yet added to their planning toolkit.
The Advisor's Guide to 721 Exchanges
A plain-language resource covering:
- How Section 721 exchanges work structurally
- Direct contribution vs. the 1031-to-721 sequence
- Key differences from Section 1031
- Estate planning and step-up considerations
- What advisors need to disclose and discuss with clients
For Financial Professional Use Only
Download the Guide
This guide is for educational purposes only and does not constitute investment, tax, or legal advice. Section 721 exchanges involve complex tax and securities considerations that vary by individual circumstance. Clients should consult their own tax and legal counsel before proceeding.
For Financial Professional Use Only.
