Roll into the fund
Keep more of what you built.
A 721 exchange lets you trade your property for fund units instead of selling for cash. When it fits, you can defer the tax, stay invested, and go passive. Here is the plain-English version.
What is a 721 exchange?
A 721 exchange, sometimes called an UPREIT, lets a property owner contribute real estate to a partnership in exchange for partnership units. Because you receive units instead of cash, the IRS generally treats it as a non-taxable event under Section 721. The gain you would owe on a straight sale is generally deferred.
For an industrial owner, that means two of the biggest costs of selling, capital gains tax and depreciation recapture, are pushed down the road instead of paid up front. After years of depreciating a building, recapture is usually the bigger bite. Your equity keeps working for you.
Your options
Three ways this can go.
Selling is not one decision, it is three different roads. Here is what each one looks like, and which one owners pick most often once they understand the difference.
Take the cash
Simple. Taxed now.
Illustrative only. Your split depends on your basis.
- One wire. You are done.
- Capital gains and depreciation recapture land in one year
- You still have to decide what to do with what is left
Roll into our fund
721 exchange. Deferred.
No tax event at the exchange itself.
- Your whole position stays invested, nothing goes to tax now
- Spread across our portfolio instead of one roof
- We manage it. We take the 24 hour calls
- Income without the tenants
- Your family inherits units, not a building and a tax problem
1031 into another building
Deferred. Still a landlord.
Deferred, but the clock starts at closing.
- Tax deferred the same way
- 45 days to identify, 180 days to close, or it fails
- You are running a building again on day one
- Concentrated in a single asset
Who ends up paying the bill?
If nothing changes, it is usually the family who inherits the property, and they rarely know the tenants, the leases or the market. Rolling into the fund keeps the position invested and passes on units instead of a management job. Assets generally receive a step up in basis at death, which is why owners planning for their children look hard at this road. Your CPA will confirm how that applies to you.
Important. This page illustrates deal structures. It is not tax, legal or investment advice and it is not an offer to sell securities. The bars above are a simple illustration of structure, not a calculation of your outcome. What you would actually keep depends on your cost basis, depreciation taken, entity, state and personal position, none of which we know. Any participation in a fund would be subject to separate documentation, eligibility and your own counsel. Bring your CPA and attorney. We will work alongside them.
1031 vs 721: what is the difference?
Both defer the tax. That is where the similarity ends. A 1031 exchange buys you another building, which means another set of tenants and a clock. A 721 roll trades your building for units in a portfolio and ends the management entirely. They solve different problems.
| Consideration | Straight cash sale | 1031 exchange | 721 roll into the fund |
|---|---|---|---|
| Capital gains tax | Due now | Deferred | Deferred |
| Depreciation recapture | Due now | Deferred | Deferred |
| What you end up holding | Cash | Another property you picked | Units in a diversified portfolio |
| Do you still manage a building | No | Yes. You are a landlord again | No |
| Deadline pressure | None | 45 days to identify, 180 to close | None |
| Diversification | Rebuild it yourself | Usually one replacement asset | Spread across the portfolio |
| Ongoing income | Ends at closing | Rent, if you pick well | Passive, if distributed |
| Getting your money back out | Immediate | Sell again, tax due then | Per fund terms, not immediate |
| Best when you want | Out, clean, now | To stay a hands-on owner | Out of management, still invested |
The 1031 trap nobody mentions
The 45 day identification window starts the day you close. Miss it and the deferral is gone. Owners under that clock routinely overpay for a replacement property, or take one they do not really want, because the alternative is a tax bill. You also end up a landlord again, which is often the thing you were trying to stop being.
Can you do a 1031 and then a 721?
Sometimes, and it is genuinely fact specific. Sequencing the two brings holding period and structuring considerations that depend on your circumstances and on how the transaction is papered. If this is your situation, raise it with your CPA early rather than late, and we will work alongside them.
Cash sale vs. rolling into the fund
| Consideration | Straight cash sale | Roll into the fund (721) |
|---|---|---|
| Capital gains tax | Due now | Deferred |
| Depreciation recapture | Due now | Deferred |
| Ongoing income | Ends at sale | Passive, if distributed |
| Diversification | Up to you to rebuild | Built into the portfolio |
| Management burden | Gone | Gone |
Prefer cash or a note? Those options are always on the table. The fund is for owners who want to defer the tax and stay invested.
How the exchange works
You contribute your property
Instead of selling for cash, you contribute the property to our fund.
You receive fund units
In return you get operating partnership units, valued at your property's agreed contribution value.
The tax is generally deferred
Under Section 721, a properly structured exchange is generally not a taxable event, so capital gains and depreciation recapture are deferred rather than paid now.
You go passive
You hold units in a diversified portfolio and go fully passive. No tenants, no maintenance, no management.
See if the 721 fits your property
Tell us about the building and we'll model cash, installment, and fund scenarios side by side.