How Does a 721 Exchange Work?
Section 721 of the Internal Revenue Code allows investors to contribute property in exchange for interest in a partnership. REITs often hold their properties through an operating partnership or umbrella partnership REIT, or UPREIT. By contributing property, a 721 investor receives OP units. Sometimes referred to as an UPREIT transaction or an UPREIT 721 exchange, this strategy has become more prevalent in recent years for investors looking for an estate-planning tool that passes down highly appreciated real estate in a tax-efficient manner.