--- title: How Does An UPREIT Transaction Work? description: In a typical arrangement for a publicly traded Real Estate Investment Trust, or REIT, the trust is a general partner that holds and manages its assets. image: https://www.realized1031.com/hubfs/Images/photo/abstract/signing-doc-house-IS-1089222958.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # How Does An UPREIT Transaction Work? Posted Mar 24, 2021 ![signing-doc-house-IS-1089222958](https://www.realized1031.com/hs-fs/hubfs/Images/photo/abstract/signing-doc-house-IS-1089222958.jpg?width=750&height=392&name=signing-doc-house-IS-1089222958.jpg) In a typical arrangement for a publicly traded Real Estate Investment Trust, or [REIT](https://www.realized1031.com/glossary/real-estate-investment-trust-reit), the trust is a general partner that holds and manages its assets through an operating partnership subsidiary. In this way, the REIT is the umbrella partnership that owns most of the Operating Partnership units. The balance of OP Units are held by limited outside partners who obtain their OP units in exchange for the contribution of real estate assets to the REIT pool.  ### Why would a taxpayer trade property for Operating Partnership Units in an UPREIT? Selling a piece of property in which the investor has enjoyed an appreciation in value will typically result in the need to pay capital gains tax on the increase, which most taxpayers prefer to avoid or defer. The more significant the increase in value (and the lower the tax basis), the higher the tax burden. If the property owner instead trades the property for OP units, they can generally defer the tax on the gains, usually until they convert the Units into shares in the REIT. The potential advantages to the contributor of the property are numerous. The investor obtains an interest in the UPREIT and the ability to pursue a diversified portfolio in exchange for the particular asset. They can control the timing of liquidation by converting the Operating Partnership Units to shares and then selling if desired. Often there is a waiting period stipulated in the transaction agreement, typically one year, but subject to negotiation. The investor must keep in mind that converting the OP units will trigger the deferred gain, but the taxpayer can seek a suitable time for that event. If the contributor retains the OP Units unconverted, they can transfer them to one or more beneficiaries, who can keep them as OP Units or redeem them for REIT shares. Due to the step-up in tax basis that the owner's death provides, the heir will typically not incur a tax bill.  ### Can the UPREIT transaction include cash considerations? Usually, the contributor cannot receive cash or liability relief at the time of the transaction or within two years without causing the transfer to become a taxable event. One notable exception is reimbursement to the contributor by the Operating Partnership for capital expenditures made during the two years before the contribution. For example, if the partnership reimbursed you for the cost of constructing a building on the property you contributed to the UPREIT, that may be allowed without triggering the taxable gain. The other point at which monetary payments are involved is with distributions. In many Operating Partnership agreements, those who hold the OP units are entitled to the same dividends paid to REIT shareholders on a monthly or quarterly basis. ### Aside from converting from OP Units to shares, what else can trigger a taxable event? If the UPREIT sells the contributed property, the contributing investor will automatically result in the taxpayer recognizing the gain in value. Other less common events that could result in a requirement for the investor to recognize the gain include an exit from the Operating Partnership (caused, for example, by a merger or takeover with cash considerations) or a reduction in the debt held by the Operating Partnership by certain levels. Frequently, the transaction arranging the exchange of the property for the Operating Partnership units will include a Tax Protection Agreement (TPA) that seeks to shield the contributor from exposure to these events since they are generally not within their control. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. A Guide to UPREIT Transactions [![A Guide to UPREIT Transactions](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/UPREIT-eBook-250b.png?width=250&height=250&name=UPREIT-eBook-250b.png "Learn more about the UPREIT ...") ](https://www.realized1031.com/blog/how-does-an-upreit-transaction-work#blogform) Download eBook ---   --- ### A Guide to UPREIT Transactions ![A Guide to UPREIT Transactions](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/UPREIT-eBook-550b.jpg?width=550&height=600&name=UPREIT-eBook-550b.jpg) Learn more about the UPREIT process. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. 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For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "In a typical arrangement for a publicly traded Real Estate Investment Trust, or REIT, the trust is a general partner that holds and manages its assets through an operating partnership subsidiary. In this way, the REIT is the umbrella partnership that owns most of the Operating Partnership units. The balance of OP Units are held by limited outside partners who obtain their OP units in exchange for the contribution of real estate assets to the REIT pool. Why would a taxpayer trade property for Operating Partnership Units in an UPREIT? Selling a piece of property in which the investor has enjoyed an appreciation in value will typically result in the need to pay capital gains tax on the increase, which most taxpayers prefer to avoid or defer. The more significant the increase in value (and the lower the tax basis), the higher the tax burden. If the property owner instead trades the property for OP units, they can generally defer the tax on the gains, usually until they convert the Units into shares in the REIT. The potential advantages to the contributor of the property are numerous. The investor obtains an interest in the UPREIT and the ability to pursue a diversified portfolio in exchange for the particular asset. They can control the timing of liquidation by converting the Operating Partnership Units to shares and then selling if desired. Often there is a waiting period stipulated in the transaction agreement, typically one year, but subject to negotiation. The investor must keep in mind that converting the OP units will trigger the deferred gain, but the taxpayer can seek a suitable time for that event. If the contributor retains the OP Units unconverted, they can transfer them to one or more beneficiaries, who can keep them as OP Units or redeem them for REIT shares. Due to the step-up in tax basis that the owner's death provides, the heir will typically not incur a tax bill. Can the UPREIT transaction include cash considerations? Usually, the contributor cannot receive cash or liability relief at the time of the transaction or within two years without causing the transfer to become a taxable event. One notable exception is reimbursement to the contributor by the Operating Partnership for capital expenditures made during the two years before the contribution. For example, if the partnership reimbursed you for the cost of constructing a building on the property you contributed to the UPREIT, that may be allowed without triggering the taxable gain. The other point at which monetary payments are involved is with distributions. In many Operating Partnership agreements, those who hold the OP units are entitled to the same dividends paid to REIT shareholders on a monthly or quarterly basis. Aside from converting from OP Units to shares, what else can trigger a taxable event? If the UPREIT sells the contributed property, the contributing investor will automatically result in the taxpayer recognizing the gain in value. Other less common events that could result in a requirement for the investor to recognize the gain include an exit from the Operating Partnership (caused, for example, by a merger or takeover with cash considerations) or a reduction in the debt held by the Operating Partnership by certain levels. Frequently, the transaction arranging the exchange of the property for the Operating Partnership units will include a Tax Protection Agreement (TPA) that seeks to shield the contributor from exposure to these events since they are generally not within their control. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.", "articleSection" : [ "UPREIT" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2021-03-24T12:00:01+0000", "datePublished" : "2021-03-24T12:00:00+0000", "description" : "In a typical arrangement for a publicly traded Real Estate Investment Trust, or REIT, the trust is a general partner that holds and manages its assets.", "headline" : "How Does An UPREIT Transaction Work?", "image" : { "@type" : "ImageObject", "height" : 501, "url" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/signing-doc-house-IS-1089222958.jpg", "width" : 750 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/how-does-an-upreit-transaction-work", "name" : "How Does An UPREIT Transaction Work?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/signing-doc-house-IS-1089222958.jpg" } ```