We all have heard of a 1031 Exchange but are you familiar with a 721?
721 Exchange (Partnership Interest Exchange)
A 721 exchange allows an investor to contribute real estate into a Real Estate Investment Trust (REIT) in exchange for shares in that REIT. This is a tax-deferred exchange of real estate for equity ownership in a REIT.
Key Benefits:
Provides liquidity by converting illiquid real estate into liquid REIT shares.
Allows diversification by contributing properties to a REIT, which holds a portfolio of properties.
No capital gains tax on the exchange as long as it is done correctly.
Requirements:
The property must be contributed to a REIT and the investor will receives shares in return.
REITs generally allow investors to access a broader portfolio of properties, which can help spread risk.
There are specific rules about the types of REITs that qualify and how the transaction must be structured.
Key Differences:
1031 Exchange: Involves exchanging one property for another of like-kind.
721 Exchange: Involves exchanging property for shares in a REIT, which is a more passive investment.
