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1031 & 721 Exchanges

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1031 Exchanges (Like-Kind Exchanges)

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A 1031 Exchange allows real estate investors to defer paying capital gains taxes when they sell a property—as long as they reinvest the proceeds into another qualifying property.

It’s one of the most powerful tools in real estate.

How a 1031 Exchange Works

  1. You sell an investment property.

  2. Instead of receiving the proceeds, a Qualified Intermediary (QI) holds the cash.

  3. You must identify replacement properties within 45 days.

  4. You must close on one of them within 180 days.

  5. If completed correctly, you defer capital gains taxes.

Qualified properties include almost all types of investment real estate:

  • apartments

  • commercial buildings

  • land

  • rental homes

  • industrial warehouses

You can also exchange into Delaware Statutory Trusts (DSTs) or Tenet In Common (TIC) securitize offering, which provide passive real estate ownership.

 

Why Investors Use 1031 Exchanges

  • Tax deferral keeps more money working for you

  • Allows moving from one property type to another

  • Helps investors upgrade property quality or diversify geographically

  • Supports long-term wealth building

Some investors complete multiple 1031 exchanges over a lifetime, rolling gains forward again and again.

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Considerations and Rules

  • Strict timelines

  • Must reinvest all proceeds to avoid partial taxation

  • Must match or increase debt levels

  • Requires using a QI—no touching the cash

 

 

721 Exchanges (UPREIT Transactions)

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A 721 Exchange, also called an UPREIT exchange, allows investors to contribute property into a REIT’s operating partnership (called an OP) in exchange for OP units instead of selling the property outright.

The result?
Tax deferral, just like a 1031 exchange — but with more flexibility afterward.

Why Investors Use 721 Exchanges

  • Defer capital gains taxes

  • Move from active landlord duties to passive income

  • Gain access to institutional-quality REIT portfolios

  • Potential for OP units to convert into REIT shares later

Many property owners use 721 exchanges as an “exit strategy” after years of being hands-on landlords.   

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