IRC §721 “UPREIT” Exchange

Under IRC §721, a real estate investor contributes his or her property to a partnership. In turn, he or she receives interests in the partnership called operating partnership units (OP units). §721 Exchanges are often used by real estate investment trusts (REITs), which typically own all or substantially all of their assets through a subsidiary partnership with the REIT acting as general partner. The resulting corporate structure is called an umbrella partnership real estate investment trust, or UPREIT. A §721 exchange gives investors the opportunity to exchange property on a tax-deferred basis for interest in the asset portfolio of a large, typically diversified real estate investment trust (REIT). For most investors, it provides the first ever means for ownership diversity, both in location and type, of their real estate portfolio.

This information should not be relied upon as a substitute for legal or tax advice from an experienced tax advisor, who has applied the general tax rules to the specific facts and circumstances of your particular situation. Tax-deferred exchanges are complicated transactions, and you should ask your chosen tax accountant or legal counsel to provide you with tax advice in a form that you can rely upon under the applicable IRS regulations.