The 721 exchange, similar to the 1031 exchange, allows an investor to defer capital gains taxes while relinquishing control of a property held for business or investment purposes. In a 721 exchange a real estate investor may defer capital gains taxes on the disposition of a property while acquiring shares in a REIT.
Can an LLC do a 721 exchange?
A and B continue to operate the business of the LLC as co- owners of the LLC. Section 721(a) generally provides that no gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.
What is a 721 Upreit?
Key Takeaways. An UPREIT is a unique REIT structure that allows property owners to exchange their property for share ownership in the UPREIT. Property-for-share exchanges in an UPREIT are generally allowed under Section 721 of the Title 26 Internal Revenue Code.
What is an Upreit structure?
The term UPREIT (short for “Umbrella Partnership Real Estate Investment Trust”) refers to an entity structure that has been used by REIT’s since 1992 to allow selling property owners the ability to convert their ownership of one or more of their specific real estate properties into an interest which is‚ immediately‚ or …
How does a 721 exchange work?
IRS §721 (“721 Exchange”) allows a Taxpayer to exchange rental or investment real estate ultimately for shares in a Real Estate Investment Trust (REIT). Investors still defer taxes because an exchange for operating partnership units (OP units) would not trigger capital-gains taxes.
What is a 721?
A section 721 Structure allows an investor to exchange property held for investment or business purposes for shares in a REIT or Operating Partnership which can remain in the Operating Partnership or eventually be transferred, tax-free, to a REIT. This transaction is often called a “721 Structured Exchange”.
What is the difference between UpREIT and DownREIT?
An UpREIT allows investors to contribute their real estate investment holdings to an umbrella partnership in exchange for limited partnership units. A DownREIT allows investors to become partners in a partnership agreement with a REIT.
What are the tax benefits of a 721 UPREIT exchange?
721 UPREIT exchange results in the same tax deferral benefits that are achieved as with a 1031 exchange. Capital gains taxes are deferred until such time as the exchanger sells the Operating Partnership Units (or OP Units), converts the OP Units to REIT shares or the acquiring operating partnership sells the contributed property.
What do you need to know about the 721 exchange?
The 721 Exchange, or UPREIT: A Simple Introduction. The 721 exchange, similar to the 1031 exchange, allows an investor to defer capital gains taxes while relinquishing control of a property held for business or investment purposes.
Can a 721 exchange be used to purchase a REIT?
With a 721 exchange, the investor would avoid the costly taxes and be able to use 100% of the gains on sale to purchase shares of a REIT. This strategy must be weighed against the fees that are required to complete the 721 exchange in order to purchase the REIT shares.
Can You defer capital gains on a 721 exchange?
In a 721 exchange a real estate investor may defer capital gains taxes on the disposition of a property while acquiring shares in a REIT. This article answers the following questions:
