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Tax-Deferred Real Estate Investing
1031 and 721 Exchanges
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Real Estate Tax-Deferral Strategies
Property owners can build wealth for themselves and their heirs by using provisions in the U.S. tax code created to incentivize real estate investment:
Section 1031 of the U.S. tax code allows investors to defer taxes on the sale of investment property when those proceeds are directly reinvested into a “like-kind” real estate investment and certain other conditions are satisfied.
A “like-kind” investment may include beneficial interests in a Delaware Statutory Trust (“DST”): a trust that owns institutional-quality, income-generating real estate that is professionally managed.
Section 721 of the U.S. tax code allows investors to exchange an interest in an investment property for an interest in a partnership owning numerous properties without recognizing a taxable gain, if certain conditions are satisfied.
How It Works and Potential Benefits
1031 Exchange
In a 1031 exchange, an investor sells an investment property and uses the sale proceeds to purchase a new “like-kind” real estate investment, deferring taxes until the new investment is sold. A specialized escrow agent, called a Qualified Intermediary, must facilitate the exchange of sale proceeds before closing on the sale of the investment property.
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Potential Benefits
- Defers capital gains and other taxes, allowing for increased capital for reinvestment in replacement real estate
- Opportunity for income-generation, including via a 1031 exchange into real property held by a DST
- Ability to build and preserve wealth over time
- Diversification into multiple properties or consolidation into one holding
1031 DST Exchange
Instead of purchasing a new property outright, an investor looking to effectuate a 1031 exchange can re-invest proceeds from the sale of their investment property in beneficial interests of a DST—a trust that owns institutional-quality, income-generating real estate that is professionally managed.
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Potential Benefits
- Eliminates responsibilities of direct property ownership
- Earns passive income from institutionally-managed property
- Ability to transfer wealth on a tax-advantaged basis
- Potential for DST financing to satisfy the 1031 requirements without the need for independently obtaining debt
- Diversifies holdings with exposure to high-quality real estate
Disadvantages of a Section 1031 Exchange into a DST may include inability to participate in management, fees and expenses may outweigh the benefits of tax deferral, and lack of access to immediate liquidity. Please see risk disclosures below for more information.
721 Exchange
An additional option to defer taxable gains on the sale of real estate investments includes a 721 exchange, which allows DST investors a potential opportunity (after executing a 1031 exchange) to receive units of an operating partnership ("OP Units") of a real estate investment trust (REIT) in exchange for the investor’s DST interests.
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Potential Benefits
- Diversified portfolio operated by institutional real estate owners
- Access to Brookfield's leading operating platform with decades of real estate experience
- Enhance income on a tax-advantaged basis from portfolio performance
- Tax-efficient opportunity for estate planning, with OP Units potentially transferred at stepped-up basis
- Potential liquidity and capital appreciation accessed through REIT
1The conversion of OP Units is subject to the discretion of the operating partnership.
The Brookfield Advantage
As one of the world's largest investors in real estate, we own, operate and develop iconic properties in the world's most dynamic markets.
Brookfield’s global scale, local presence and distinct viewpoints as an owner-operator allow it to deploy capital with a long-term view.
By partnering with Brookfield for a 1031 exchange, investors have the potential to build and preserve wealth with the support of a leading real estate platform and real estate expertise built over more than 100 years.
$268B
REAL ESTATE ASSETS UNDER MANAGEMENT 2
29K
OPERATING EMPLOYEES 2
660+
REAL ESTATE PROFESSIONALS 2
2 Assets under management as of June 30, 2024. Employees as of December 31, 2023.
Learn More
To invest in a tax-deferred real estate exchange, contact a financial professional. If you are a financial professional interested in offering a tax-deferred exchange to your clients, please contact us.
Disclosures
All investing involves risk. Alternative investments are complex, speculative investment vehicles and are not suitable for all investors. An investment in an alternative investment entails a high degree of risk, and no assurance can be given that any alternative investment fund’s investment objectives will be achieved or that investors will receive a return of their capital. The value of an investment will fluctuate over time, and an investor may gain or lose money, or the entire investment. Past performance is no guarantee of future results. Diversification does not guarantee returns and does not protect against loss.
Risks of a Section 1031 Exchange into a DST may include inability to participate in management and lack of access to immediate liquidity. Risks of a Section 721 Exchange may include inability to participate in management and lack of access to immediate liquidity.