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Decoding Financial Statements When Exchanging DSTs into REIT Shares via Section 721
There are many ways to be involved with real estate ownership. There is direct ownership, which involves hands-on management and decision-making. Then there is passive ownership, including Delaware Statutory Trusts (DSTs) or real estate investment trusts (REITs).
UPREITs and Legal Aspects
When executed properly, Umbrella Partnership Real Estate Investment Trusts (UPREITs) can provide a tax-advantaged diversification approach or exit strategy if you’re done with active property ownership. However, the process can be intricate and involves legal and tax issues.
Using Section 721 to Dispose of Commercial Real Estate
Owning and managing commercial real estate (CRE) properties requires a great deal of time, money, and know-how. If you’re a CRE owner or investor who wants to move on, you could sell your properties. However, property value appreciation can mean capital gains taxes.
The Limitations of REIT Investments
A real estate investment trust (REIT) is a company that buys, sells, operates, and finances income-producing properties. REITs raise capital to acquire and manage these properties by selling units or shares to investors. Income generated by the owned properties through rent and property appreciation is distributed to investors as dividends or cash flow.
What to Know Before Working With a UPREIT Sponsor
If you own appreciated-value investment real estate, an Umbrella Partnership Real Estate Investment Trust (UPREIT) can be a good tax-advantaged option. Available through the Internal Revenue Code (IRC) Section 721, a UPREIT transaction allows you to trade your real estate assets in exchange for Operating Partnership (OP) units in a real estate investment trust (REIT). Those units can be exchanged for REIT shares or cash at a later date.
The Impact Of UPREITs On Real Estate Developers
In the past, real estate developers earned money by collecting rent on completed properties or selling them. In recent years, 26 U.S. Code § 721—“Nonrecognition of Gain or Loss Contribution”—has offered property owners and developers different real estate financing methods.
The Tax Benefits of Combining UPREITs and Estate Planning
If you’re contemplating retirement or want to transfer your wealth to future generations, estate planning is integral to your long-term strategy. And if investment real estate is part of that wealth generation, contributing your property to an Umbrella Partnership Real Estate Investment Trust or UPREIT can help you achieve current investment objectives while passing along potential tax advantages to your heirs.
UPREITS, Real Estate, and Natural Disasters
Natural disasters are in the news. Hurricane-generated massive floods destroyed inland towns, while snow and ice storms wreaked havoc on Sun Belt states. At the same time, wildfires in Los Angeles have meant billions in losses.
What Are the Pros and Cons of a 721 Exchange?
Real estate investors have various options when deferring capital gains taxes and depreciation recapture on investment property sales. One such method is a 721 exchange, or Umbrella Partnership Real Estate Investment Trust (UPREIT). When used correctly, the UPREIT process can help defer tax liability from property that appreciates.
Can REITs Invest in Limited Partnerships?
For investment property owners, exploring the relationship between Real Estate Investment Trusts (REITs) and Limited Partnerships (LPs) such as joint ventures can reveal new opportunities for portfolio diversification and passive income. REITs, known for their tax-advantaged structure and focus on income-producing real estate, often seek innovative ways to broaden their investments —including partnering with LPs. By examining this interplay with specific examples, investors can better understand the benefits and challenges of this approach.
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