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.