Along with tax deferral, other potential benefits of a 721 Exchange Option include:
How a 721 Exchange Works After an investor invests in a
Delaware Statutory Trust property, and the property goes full cycle, investors can choose to participate in a 721 exchange. This means the DST investment will be absorbed by a larger Real Estate Investment Trust Operating Partnership. Operating Partnerships are the entities through which REITs typically acquire and own their properties. Once the DST property is absorbed into the REIT, the investor’s interest will get converted into Operating Partnership Units (OPs). This is all done on a tax- deferred basis utilizing the IRC Section 721 exchange.
• The ability to realize the economic benefits of the REIT’s entire property portfolio (including distributions of potential monthly operating income, potential capital appreciation and property diversification*) • Liquidity options by partial conversion of OP Units to REIT shares (investor can “peel off” what they need and pay the taxes on just that amount)
• The ability to fully divide OP Units for estate planning among their heirs
• The ability to provide heirs with a step up in tax basis, just as they would have been able to with their individual property.
The main caveat to the Section 721 exchange is that once an investor proceeds with the exchange, they lose the ability to continue 1031 exchanging and deferring taxes. They now only have the option to convert their Operating Partnership Units to REIT shares and pay their capital gains tax. Therefore, investors who are in the midst of estate planning and know that upon their passing, their heirs will receive a step up in tax basis, which will eliminate the capital gains tax, often consider the Section 721 exchange. Which of these 1031 exchange alternatives is best? Every case is specific, so it’s best to consult a professional who can recommend the best 1031 exchange options based on the investor’s unique situation. Contact Kay Properties (855) 899-4597 or info@kpi1031.com for expert guidance.
DWIGHT KAY Founder and CEO Kay Properties and Investments (855) 899-4597
Dwight Kay is the Founder and CEO of Kay Properties and Investments, LLC. Kay Properties is a national 1031 exchange investment firm. The www.kpi1031.com platform provides access to the marketplace of 1031 exchange properties, custom 1031 exchange properties only available to Kay clients, independent advice on sponsor companies, full due diligence and vetting on each 1031 exchange offering (typically 20-40 offerings) and a 1031 secondary market. Kay Properties team members collectively have over 400 years of real estate experience, are licensed in all 50 states, and have participated in over $30 Billion of 1031 investments.
Disclaimer : This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Securities offered through FNEX Capital, member FINRA.
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