“PRE-REIT” EXCHANGE INVESTMENTS: COMBINING IRC 1031 AND IRC 721 IRC Sec. 1031 allows investors to defer the payment of capital gains taxes when selling investment property and exchanging into other qualified investment property. IRC Sec. 721 allows investors to transfer their interests in a property to the operating partnership (OP) of a REIT. Some How Pre-REIT Exchange Investments Work STEP 1: Investor sells a rental property and exchanges it for interests in a 1031 DST property STEP 2: The 1031 DST sponsor is affiliated with a public REIT; property often is already part of the REIT portfolio STEP 3: The investment period in the 1031 DST is typically two to three years STEP 4: Thereafter, the DST shares are exchanged for units in the OP of a non-traded REIT STEP 5: OP distributions mirror REIT distributions; investor receives a Schedule k-1 sponsors of 1031 DST programs have combined these two tax advantages into one strategy, creating an opportunity to exchange today into a “Pre-REIT” property, ultimately with the intention of owning OP units with enhanced redemption options. STEP 6: Depending on the REIT, units may be redeemed by the REIT or sold on an exchange STEP 7: Alternatively, investors may hold their OP units until death and benefit from a step-up in basis
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