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UPREITs as 1031 Exchange Replacement Property Solutions

REITs – also known as Real Estate Investment Trusts – are considered securities and can be publicly traded like any other publicly traded stock, and thus are very similar to a mutual fund that invests in real estate and real estate related assets. REITs tend to provide solid returns on their initial investment and provide an Investor with a very diversified real estate portfolio because they tend to acquire numerous properties.

An Investor cannot 1031 Exchange into a REIT because it is not considered an interest in real estate; instead, it is considered personal property and not like-kind to the property that was sold.

When Investors 1031 Exchange into an upREIT here are risks inherent in doing so; for example, the sale of interest in an upREIT will be taxable because the Investor has exchanged into a security and therefore no longer owns real estate. The upREIT also has control over the sale or disposition of the asset they 1031 Exchanged into, and are able to trigger the Investor’s deferred capital gain and depreciation recapture by sale of the asset. However, if the upREIT does not sell the property, capital gain and depreciation recapture taxes are indefinitely deferred.

The upREIT makes for investment diversification, increased cash flow, and tax-deferred planning strategies, but also contains some significant risks as well.


Disclaimer: 1031 exchange made simple does not guarantee the performance of the QI's in our referral network and we can not be held liable for any misrepresentations or mistakes in regards to a 1031 exchange by one of the QI's that we refer to you. 1031 Exchange made simple does not provide tax advice nor can we make representations regarding the tax consequences of an exchange transaction. 1031 Exchange made simple is a 1031 QI Referral Network. 1031 made simple is not responsible (in any way) for the performance, creditability, and financial condition of any QI in our network. In this new economic environment it is imperative that all potential 1031 exchange customers do their own due diligence and research on any QI that they may use, on a 1031 exchange. Please verify and check the validity of the Bonding and Insurance of your QI. It may be wise to have your 1031 exchange accounts set up as separate, individual customer accounts. Our web site is to be used as a information based web site only. All parties doing a 1031 exchange must consult their tax advisors or attorney for this information.

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