Section 721 Exchange

The tax free or tax deferred contribution of property for partnership interest is known as a 721 exchange or section 721 of the internal revenue code.

Section 721 exchange. The 721 exchange enables an investor to achieve diversification across geography industry tenant and asset class in an operating partnership structure. A section 721 exchange allows investors to avoid taxes and keep their wealth working for them in a tax deferred exchange of their investment property for shares in an operating partnership. A simple introduction the 721 exchange similar to the 1031 exchange allows an investor to defer capital gains taxes while relinquishing control of a property held for business or investment purposes.

A general rule no gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. Section 721 of the internal revenue code allows an investor to exchange property held for investment or business purposes for shares in a real estate investment trust reit without triggering a taxable event.