What is a 721 UPREIT Strategy for Leftover Equity?
A 721 UPREIT strategy solves leftover equity problems in 1031 exchanges by allowing investors to defer 100% of capital gains taxes on remaining funds while preserving future liquidity access. This strategy works by investing in DSTs that convert to REIT shares within 3-5 years, enabling partial share sales without triggering taxes on remaining holdings. Result: Complete tax deferral with future flexibility.
✓ 100% tax deferral ✓ Future liquidity access ✓ Partial exits allowed ✓ 3-5 year conversion timeline
Case Study Summary
This real 721 UPREIT case study demonstrates how a hotelier with $350,000 in leftover equity from a 1031 exchange solved two challenges simultaneously: deferring 100% of capital gains taxes while maintaining future access to $100,000 in liquidity for business needs. The solution combined traditional DST diversification with innovative 721 UPREIT conversion strategy.
Challenge Metrics:
Have leftover equity from a 1031 exchange? Schedule a free consultation to explore how 721 UPREIT strategies can defer your taxes while preserving future liquidity access.
The Leftover Equity Challenge: $350K with Future Liquidity Requirements
The Problem: After selling valuable raw land in a 1031 exchange, this experienced hotelier successfully reinvested most proceeds but faced a common challenge - $350,000 in leftover equity that needed immediate reinvestment to avoid capital gains taxes. The complexity: he required future access to at least $100,000 for anticipated business opportunities.
Why This Challenge is Common:
Many 1031 exchanges leave investors with leftover funds that don't fit into their replacement property purchase. Without proper planning, these funds trigger immediate capital gains taxes, potentially costing 20-37% in federal taxes alone.
Unique Requirements:
- Defer taxes on the full $350,000 remaining funds
- Maintain future access to $100,000 for business needs
- Avoid triggering immediate tax events on the entire investment
This wasn't a standard 1031 exchange scenario - it required an innovative approach that balanced tax deferral with future liquidity access, leading to the development of a hybrid DST and 721 UPREIT strategy.
Traditional DST vs 721 UPREIT Strategy
| Feature | Traditional DST Only | 721 UPREIT Strategy |
|---|---|---|
| Tax Deferral | ✓ Complete deferral until sale | ✓ Complete deferral with future flexibility |
| Liquidity Access | ✗ No liquidity until disposition | ✓ REIT share sales after conversion |
| Partial Access | ✗ All-or-nothing disposition | ✓ Sell portions while holding others |
| Timeline Flexibility | ✗ Subject to sponsor timeline | ✓ 3-5 year planned liquidity path |
The Hybrid 721 UPREIT Solution
Working with Anchor1031's professional team, the hotelier implemented a masterful two-part strategy combining traditional DST diversification with an innovative 721 UPREIT structure to solve both immediate tax deferral and future liquidity needs.
Part 1: Traditional DST Diversification
Allocated portion across 3 DSTs for stable income
- Multifamily properties
- Industrial assets
- Essential retail
Part 2: 721 UPREIT Strategy
Invested in DST with planned REIT conversion
- 3-year exit timeline
- REIT share conversion
- Future liquidity access
How 721 UPREIT Provides Both Tax Deferral and Future Liquidity
The 721 UPREIT conversion process was the breakthrough solution. Within 3-5 years, when the DST property is acquired by a sponsoring REIT, the hotelier's real estate ownership automatically converts into publicly tradable REIT shares, providing:
Continued Tax Deferral:
Hold REIT shares indefinitely to maintain 100% tax deferral on unsold portions
Partial Liquidity Access:
Sell any percentage of REIT shares for immediate cash without affecting tax deferral on remaining shares
Results: A Win-Win Strategy
The Results: This 721 UPREIT case study demonstrates a complete success - the hotelier achieved 100% tax deferral on $350,000 while preserving future access to $100,000+ in liquidity. This proves that strategic 721 UPREIT planning eliminates the traditional choice between tax benefits and financial flexibility:
Outcomes Achieved:
- Deferred 100% of capital gains taxes on $350,000
- Created diversified real estate portfolio across multiple sectors
- Secured passive income stream from professional management
- Maintained future liquidity access through 721 UPREIT structure
- Avoided massive tax bill while preserving investment flexibility
Key Insight: The 721 UPREIT strategy eliminates the traditional trade-off between tax deferral and liquidity access. Investors can achieve 100% capital gains tax deferral while maintaining planned access to capital through future REIT share sales, proving that proper planning provides both benefits simultaneously.
Interested in Anchor1031's 721 UPREIT opportunities? Explore current DST investments with UPREIT potential.
721 UPREIT Strategy Benefits Summary
Why Choose 721 UPREIT for Leftover Equity:
Tax Benefits:
- • 100% capital gains tax deferral
- • No taxes until REIT shares are sold
- • Potential estate tax benefits
Liquidity Features:
- • Planned 3-5 year liquidity access
- • Sell portions without affecting remainder
- • Public market REIT share trading
Investment Features:
- • Professional property management
- • Diversification across asset types
- • Passive income generation
Risk Management:
- • Reduced single-property risk
- • Professional sponsor management
- • Multiple exit strategy options
Bottom Line: 721 UPREIT strategies provide both immediate tax deferral and future liquidity flexibility, making them ideal for leftover equity challenges in 1031 exchanges.
721 UPREIT Strategy: Frequently Asked Questions
Solve Your Leftover Equity Challenge with 721 UPREIT Strategy
Do you have leftover equity from a 1031 exchange? If you need to defer taxes while preserving future liquidity access, Anchor1031's 721 UPREIT specialists can design a customized strategy. Our proven approach has helped investors nationwide defer 100% of capital gains taxes while maintaining planned access to capital through REIT conversions.
Get Professional Guidance Today:
- Schedule a free strategy consultation for your leftover equity challenge
- Download our 721 UPREIT Strategy Guide
- Browse DST investments with UPREIT potential
Ready to Solve Your Leftover Equity Challenge?
Don't pay unnecessary capital gains taxes on leftover 1031 exchange funds. Contact Anchor1031 at (502) 556-1031 to explore how 721 UPREIT strategies can defer 100% of your taxes while preserving future liquidity access.
Stephen Haskell
Partner at Anchor1031
Stephen Haskell is a partner at Anchor1031, bringing a unique perspective to real estate investment through his distinguished military background. With a career managing intelligence operations for elite special missions units in Afghanistan, Iraq, and Africa, Stephen developed critical expertise in strategic planning and risk mitigation - skills that were literally a matter of life or death.
Transitioning to the real estate industry, Stephen identified a critical flaw: a relaxed, unbalanced approach to risk management. For investors looking to retire, he recognized that an overlooked risk could compromise a lifetime of hard-earned wealth. This realization became the foundation of Anchor1031, where Stephen applies the same meticulous approach to risk assessment that he used in military operations.
Anchor1031's primary objective is to identify risk, educate clients on its potential impact, and build portfolios based on transparency and integrity. Stephen's military-grade discipline in strategic planning now protects investors' wealth through carefully vetted 1031 exchanges and DST investments.
Disclosure
Tax Complexity and Investment Risk
Tax laws and regulations, including but not limited to Internal Revenue Code Section 1031, bonus depreciation rules, cost segregation studies, and other tax strategies, contain complex concepts that may vary depending on individual circumstances. Tax consequences related to real estate investments, depreciation benefits, and other tax strategies discussed herein may vary significantly based on each investor's specific situation and current tax legislation. Anchor1031, LLC and Great Point Capital, LLC make no representation or warranty of any kind with respect to the tax consequences of your investment or that the IRS will not challenge any such treatment. You should consult with and rely on your own tax advisor about all tax aspects with respect to your particular circumstances. Please note that Anchor1031 and Great Point Capital, LLC do not provide tax advice.
The information contained in this article is for general educational purposes only and does not constitute legal, tax, investment, or financial advice. This content is not a recommendation or offer to buy or sell securities. The content is provided as general information and should not be relied upon as a substitute for professional consultation with qualified legal, tax, or financial advisors.
Tax laws, regulations, and IRS guidance regarding 1031 exchanges are complex and subject to change. Information herein may include forward-looking statements, hypothetical information, calculations, or financial estimates that are inherently uncertain. Past performance is never indicative of future performance. The information presented may not reflect the most current legal developments, regulatory changes, or interpretations. Individual circumstances vary significantly, and strategies that may be appropriate for one investor may not be suitable for another.
All real estate investments, including 1031 exchanges, are speculative and involve substantial risk. There can be no assurance that any investor will not suffer significant losses, and a loss of part or all of the principal value may occur. Before making any investment decisions or implementing any 1031 exchange strategies, readers should consult with their own qualified legal, tax, and financial professionals who can provide advice tailored to their specific circumstances. Prospective investors should not proceed unless they can readily bear the consequences of potential losses.
While the author is a partner at Anchor1031, the views expressed are educational in nature and do not guarantee any particular outcome or create any obligations on behalf of the firm or author. Neither Anchor1031 nor the author assumes any liability for actions taken based on the information provided herein.