Exchanging into a REIT--1031-721 Analysis

1031-721 EXCHANGE

Although an investor cannot invest in REIT common stock as a Replacement Property, an investor can exchange full or fractional (TIC) ownership in a single property for partnership units in a large portfolio of investment-grade properties.  Known as real-estate investment trust operating partnership units, these can even later be converted into REIT stock (which is then a taxable event).  This process involves the combination of these two proven tax-deferral mechanisms (Sections 1031 & 721) under the Internal Revenue Code.

§ 721. NON-RECOGNITION OF GAIN OR LOSS ON CONTRIBUTION

(a) General rule-- 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.

(b) Special rule-- Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351) if the partnership were incorporated.   

(Next: 1031-721 How Does It Work Link). 

Comments

[John Beck Teleseminar]

In any Partnership the general rule is any change should be in favor of both the partners making the process easy and effective .