Resources

While a 1031 exchange directly into a REIT is not allowed, investors can still defer capital gains taxes and access institutional-quality real estate through two alternatives: UPREITs (721 exchanges) and Delaware Statutory Trusts (DSTs). UPREITs allow investors to contribute property to an operating partnership for units that can later convert to REIT shares tax-free. DSTs offer fractional ownership in diverse property portfolios, combining direct ownership benefits with professional management. Both options provide tax efficiency, passive income, and exposure to high-quality assets otherwise inaccessible to individual investors, making them compelling solutions for those seeking to redeploy investment proceeds.

The article discusses strategies for investors to defer capital gains taxes realized in 2023. One key option highlighted is investing the gains into a qualified opportunity zone (QOZ) fund, which can defer the original capital gains taxes until at least the end of 2026, and potentially exempt future gains if held for 10 years or more. The article notes that partnerships have added flexibility, with extended deadlines that allow partners to reinvest gains into a QOZ fund by as late as September 2024. However, the article cautions that QOZ investments require careful research, as they are generally illiquid long-term commitments with varying returns. The advice is to work with tax and financial professionals to navigate the program requirements and identify the right QOZ investment for deferring 2023 capital gains.

The article explains the key rules and strategies around the 1031 tax-deferred exchange, a powerful tool for real estate investors. Fundamentally, a 1031 exchange allows investors to defer capital gains taxes by reinvesting the proceeds from the sale of one investment property into a "like-kind" replacement property. The article outlines the strict timelines involved, the requirement to reinvest the full sale proceeds, and the different exchange structures available. It cautions that professional assistance is critical to navigate the complexities and avoid costly mistakes. Ultimately, the 1031 exchange can be a valuable way to indefinitely defer capital gains, unless the investor decides to cash out, in which case the taxes become due.