Understanding Capital Gains in Today’s Market

Capital gains taxes have always been a major consideration for real estate owners thinking about selling their properties. But lately, with the tax landscape becoming increasingly unpredictable, these concerns are front and center for many multifamily owners.

Selling a property outright can trigger a hefty tax bill, sometimes eating deeply into the profits you worked so hard to build. But here’s the catch: not all capital gains are created equal. There are smarter, more strategic ways to handle those gains, especially if your focus is on long-term wealth preservation.

The Rise of the 721 UPREIT Exchange

One increasingly popular strategy that multifamily property owners are turning to is the 721 UPREIT Exchange. Unlike a traditional sale, this option allows you to defer paying capital gains taxes by contributing your property into a Real Estate Investment Trust (REIT) in exchange for partnership units.

Why is this gaining traction now? Because the 721 UPREIT path offers a powerful combination of tax efficiency, portfolio diversification, and ongoing income, all without forcing you to cash out or lose the value you’ve built.

How the 721 UPREIT Differs from a Traditional Sale

When you sell a property outright, you realize a capital gain based on the difference between your sale price and your original purchase price (adjusted for depreciation). That gain is taxable, sometimes at very high rates depending on your income bracket and recent tax law changes.

The 721 UPREIT structure lets you sidestep that immediate tax hit. Instead of selling, you’re exchanging your property for operating partnership units in a REIT, which represent your share in a larger, professionally managed real estate portfolio.

This exchange is not a sale, it’s a contribution. That means no capital gains taxes are triggered at the time of the transaction. You maintain an investment interest, and your tax liability is deferred until you decide to cash out later. Instead of being tied to a single property, your investment is now part of a broader, professionally managed portfolio of institutional-grade real estate. This diversification helps reduce risk and can provide more consistent, long-term returns.

Why Multifamily Owners Are Especially Drawn to This Strategy

Multifamily properties often require active management and capital improvements. For owners who want to step back from day-to-day operations or diversify their holdings, the 721 UPREIT provides an elegant solution.

By exchanging into a REIT, multifamily owners can:

• Offload management responsibilities to experienced professionals
  
• Reduce concentration risk by becoming part of a diversified portfolio
  
• Continue receiving income through distributions from their partnership units
  
• Maintain upside potential without locking themselves into a single asset
  

It’s a way to simplify without sacrificing value.

Navigating Today’s Volatile Tax Environment

With tax laws subject to change and capital gains rates possibly increasing, the importance of planning can’t be overstated. The 721 UPREIT strategy helps multifamily owners stay one step ahead.

Rather than face an unpredictable tax bill, you can defer your gains, giving you flexibility to decide when and how to realize your profits in the future. That timing control can be critical as you work to preserve and grow your wealth.

Real-World Benefits: A Personal Perspective

In my own experience, working with families and developers, I’ve seen how the 721 UPREIT path transforms portfolios. One family we advised was facing mounting property management challenges and a looming tax bill if they sold.

By moving into a REIT via a 721 exchange, they were able to simplify their lives, maintain steady income, and defer a significant tax payment. More importantly, they preserved wealth that can now be passed on to the next generation.

Common Questions About the 721 UPREIT

A question I often hear is, “Do I lose control of my assets when I do this?”

You do relinquish direct ownership of the individual properties you contribute, but you gain a share of a larger, diversified portfolio managed by a professional team. For many, that tradeoff is worth the reduced risk and hands-off income stream.

Another common question is, “What happens when I want to cash out?”

You can convert your partnership units into REIT shares, which are often publicly traded, providing liquidity and flexibility. At that point, capital gains taxes are realized, but by controlling the timing, you can plan for optimal tax outcomes.

A Growing Trend Among Multifamily Owners

The 721 UPREIT isn’t just a niche strategy anymore. More multifamily owners are recognizing its advantages as they plan for retirement, succession, or portfolio rebalancing.

In volatile markets, the ability to defer taxes, reduce operational burdens, and participate in a larger platform is proving invaluable.

Planning for Legacy and Growth

As a family business, I know that preserving wealth for future generations is about more than numbers, it’s about stewardship. The 721 UPREIT aligns with that philosophy by offering a way to unlock liquidity without losing legacy.

For multifamily owners ready to think beyond a traditional sale, this strategy provides a clear path to building lasting value while navigating today’s tax challenges.

Capital Gains With a Strategy

If you own multifamily properties and have been thinking about your next move, don’t let capital gains taxes dictate your decisions. The 721 UPREIT exchange offers a powerful alternative that helps you keep more of what you’ve earned, while simplifying management and positioning your portfolio for the future.

By understanding that not all capital gains are created equal, you open doors to smarter, more flexible wealth-building.

The key is to align your investment moves with your long-term goals. And in my experience, the 721 UPREIT can be a cornerstone of that approach.