1031 Exchange Into a REIT: What the Law Allows (UPREIT vs DST)
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Quick Answer
No, you cannot complete a 1031 exchange into REIT shares, listed or non-traded. Since 2018, section 1031 covers only real property, and Treas. Reg. 1.1031(a)-3(a)(5) lists what is not real property “regardless of the classification of such property under State or local law”, starting with “Stock not described in paragraph (a)(5)(i) of this section, bonds, or notes” and “Interests in a partnership”. A REIT share is stock; the operating partnership (OP) units an UPREIT issues are partnership interests. What does work, as of October 10, 2026, is four routes: buy real property (including property a REIT is selling), buy a Delaware statutory trust interest the IRS treats as real estate under Rev. Rul. 2004-86, contribute your property to an UPREIT's operating partnership for OP units under section 721 instead of doing a 1031, or do a DST first and let a REIT's partnership absorb it later. The third route is less rare than the advice columns suggest: 28 REITs filed a fiscal 2025 Form 10-K that discusses buying property through “tax deferred contribution” transactions, and 15 of them say they have done it or report units issued for property (our count of the EDGAR full-text results). The terms in those filings are what decide the deal: OP units usually cannot be redeemed for 12 months, any cash the partnership pays you within two years is presumed to be a sale (Treas. Reg. 1.707-3), and when the REIT later buys your units for cash or shares, JBG SMITH's 10-K says plainly that it “will be treated as a fully taxable sale”.
Key Takeaways
- REIT shares and OP units both fail the 1031 test: Treas. Reg. 1.1031(a)-3(a)(5) excludes stock and partnership interests from real property, whatever state law says. The old statutory list of excluded stocks was removed by the 2017 tax law; the exclusion now lives in the regulation and in the words real property.
- A DST interest is the exception because the IRS looks through the trust: Rev. Rul. 2004-86 treats the investor as owning an undivided interest in the real estate, not a trust certificate.
- Section 721 is not a 1031 exchange. It lets you contribute property to a partnership for units without gain, but the units end the 1031 chain.
- Census: 28 REITs used the phrase tax deferred contribution in their fiscal 2025 10-Ks (22 listed, 6 non-traded). 12 say they have used it; 3 more show OP units issued for property in the same filing; 13 say only that they may.
- ExchangeRight Income Fund took 6 properties in 721 exchanges in 2025 (purchase prices $12.73 million, our sum) for 396,868 OP units worth $10.9 million; Postal Realty issued 510,380 OP units to contributors in 2025.
- Exit terms in the filings: OP units redeemable after 12 months (Alpine, Postal Realty) or one year (Essential Properties, Fortress Net Lease REIT, BXP generally); BXP has a tax protection agreement running to December 14, 2033.
- Cash from the partnership within two years of your contribution is presumed to be a sale under Treas. Reg. 1.707-3; in the regulation's own example, $3,000,000 of cash on a $4,000,000 property with a $1,200,000 basis triggers $2,100,000 of gain.
- Rev. Rul. 99-5 and Rev. Rul. 2004-59, often cited on this topic, are about an LLC gaining a second member and a partnership converting into a corporation. Neither addresses REITs, DSTs or co-ownership.
CSV · 96 rows
1031 into a REIT: the law, and 28 REITs' 10-K statements on taking property for OP units
96 rows: statute, regulation and revenue-ruling text with citations; EDGAR full-text counts; one row per REIT with its 10-K sentence on tax deferred contributions and our classification; and deal terms (units issued for property, lockups, tax protection agreements, DST option windows), each with its accession number.
Why REIT shares are not 1031 replacement property
The statute is short. Section 1031(a)(1) reads: “No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.” Before 2018 the same section listed what could never be exchanged, including “stocks, bonds, or notes” and “interests in a partnership.” The Tax Cuts and Jobs Act replaced that list with a single exclusion for real property held for sale and put the words “real property” in place of “property” (26 U.S.C. 1031, amendment notes). So the reason a REIT share fails is no longer a line in the statute. It is the regulation's definition of real property.
That definition, Treas. Reg. 1.1031(a)-3, starts broad (“land and improvements to land, unsevered natural products of land, and water and air space superjacent to land”) and then closes the door that matters here. Paragraph (a)(5) says: “The following intangible assets are not real property for purposes of section 1031 and this section, regardless of the classification of such property under State or local law—” and lists five items. Three of them catch every way of owning a REIT:
| What you would receive | What it is legally | The line in Treas. Reg. 1.1031(a)-3(a)(5)(i) | 1031 replacement property? |
|---|---|---|---|
| Listed REIT shares (bought on an exchange) | Stock | (A) Stock not described in paragraph (a)(5)(i), bonds, or notes | No |
| Non-traded REIT shares (bought from the sponsor) | Stock | (A) Stock not described in paragraph (a)(5)(i), bonds, or notes | No |
| UPREIT operating partnership units | Partnership interest | (C) Interests in a partnership, unless the partnership has a section 761(a) election out of subchapter K | No |
| A REIT's interval fund or feeder fund units | Securities | (B) Other securities or evidences of indebtedness or interest | No |
| DST beneficial interest | Trust certificate on its face | (D) Certificates of trust or beneficial interests | Yes, if it fits Rev. Rul. 2004-86 (below) |
| Stock in a co-op apartment corporation | Stock | Named as real property in (a)(5)(i) | Yes: the one kind of stock the rule includes |
The co-op line is the useful contrast (our reading): the regulation does not exclude stock because it is stock; it names the few kinds of stock that count as an interest in real property, and REIT shares are not among them. An operating partnership could in theory make the section 761(a) election, but an UPREIT's partnership exists to run a business and pay the REIT, which is the opposite of what that election requires.
The DST exception, and why it is narrow
A DST interest looks like a trust certificate, which the same list excludes. Rev. Rul. 2004-86 gets around that by looking through the trust: the investors are grantors, each is treated as owning an aliquot share of the trust's assets, and so, in the ruling's words, the exchange “is the exchange of real property for an interest in Blackacre, and not the exchange of real property for a certificate of trust or beneficial interest under § 1031(a)(2)(E).” That paragraph cites the pre-2018 statutory list; the same item now sits in the regulation as (a)(5)(i)(D), and we read the ruling's reasoning as unchanged by the move (our reading).
The ruling only works for a trust that cannot act like a business. It names five powers that would turn the DST into a partnership: disposing of the property and buying new property, renegotiating the lease or signing new tenants, refinancing the debt, investing cash to profit from market swings, and making more than minor non-structural changes. That is why a DST holds one fixed set of buildings with fixed debt, and why a REIT, which does all five every year, can never fit. Our guide to DSTs reads the market from Form D filings, and what DST sponsors charge is in our fee analysis; neither is repeated here.
Two rulings that are cited for this and say something else
Pages about 1031 exchanges and REITs sometimes cite Rev. Rul. 99-5 and Rev. Rul. 2004-59 next to Rev. Rul. 2004-86. We read both in the Internal Revenue Bulletin.
- Rev. Rul. 99-5 (IRB 1999-6) is headed “Disregarded entity to partnership.” It covers a single-member LLC that becomes a partnership when a second member buys in or contributes. It says nothing about REITs, DSTs or co-ownership.
- Rev. Rul. 2004-59 (IRB 2004-24) is headed “State law conversion from partnership to corporation.” It explains the tax result when a partnership converts into a corporation under a state formless-conversion statute: the partnership is treated as contributing its assets to the corporation for stock and distributing the stock.
Neither creates a way into a REIT. The co-ownership ruling that does matter for 1031 replacement property is Rev. Proc. 2002-22 on tenancies in common, covered in our 1031 rules page.
The four routes that do work
| Route | Law it rests on | What you own afterwards | Who decides the timing | Can you 1031 again later? |
|---|---|---|---|---|
| 1. Buy real property, including property a REIT is selling | Section 1031 | The building, outright | You | Yes |
| 2. Buy a DST interest (including a REIT sponsor's DST) | Section 1031 and Rev. Rul. 2004-86 | A fractional interest in the DST's real estate | You buy; the trust decides when to sell | Yes, when the DST sells, unless your interest is first taken into a REIT |
| 3. Contribute your property to an UPREIT for OP units | Section 721 (not 1031) | OP units, usually redeemable for cash or REIT shares after 12 months | You and the REIT negotiate | No: partnership interests are excluded |
| 4. DST now, REIT later (two steps) | Section 1031, then section 721 | First a DST interest, then OP units | Usually the REIT, through an option | No, once the units are issued |
| Not a route: buy REIT shares with the sale proceeds | None | Stock | You | The sale is simply taxable |
Route 1 is the plain 1031. REITs are large sellers of exactly the kind of property exchange buyers want. Realty Income's 10-K says that during 2025 it “sold 425 properties with total net proceeds received of $744.0 million.” Buying one of those buildings through a qualified intermediary is an ordinary exchange; the REIT is only the counterparty.
Route 2 is the DST, covered above.
Routes 3 and 4 are where the REIT actually becomes your investment, and both use section 721(a): “No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.” The trade-off is in the regulation already quoted: the OP units you receive are partnership interests, so the 1031 chain ends with them.
Which REITs say they take property for OP units: the 2025 10-K census
We searched every Form 10-K filed on EDGAR from October 1, 2025 to October 9, 2026 for the exact phrase “tax deferred contribution,” the wording REITs use in the risk factor that covers buying property for OP units. EDGAR full-text search returned 36 documents. Removing five documents from non-REIT filers (four companies outside real estate and an opportunity zone fund), a second copy of one REIT's 10-K, the operating partnership's own copy of another REIT's 10-K and one parking-facility company whose 10-K does not describe it as a REIT left 28 REITs: 22 listed and 6 non-traded (our count). We then classified each by what its own sentence says.
| What the 10-K says | REITs | Count |
|---|---|---|
| Says it has acquired property for OP units | Realty Income, Four Corners, Alpine Income, BXP, Rexford Industrial, Chiron Real Estate, Postal Realty, Brandywine, Armada Hoffler, Healthpeak, Federal Realty, Blue Owl Real Estate Net Lease Trust | 12 |
| Wording says may, but the same 10-K reports units issued for property | ExchangeRight Income Fund, IPC Alternative Real Estate Income Trust, Blue Owl Digital Infrastructure Trust | 3 |
| Says only that it may | Broadstone Net Lease, NETSTREIT, FrontView, Essential Properties, Clipper, Empire State Realty, American Assets, JBG SMITH, Hudson Pacific, Community Healthcare, Xenia, Nuveen Farmland REIT, Fortress Net Lease REIT | 13 |
The same search found the phrase “tax protection agreement” in 43 10-K documents and the word “UPREIT” in 94, which is the wider universe of REITs organized so that a contribution is possible at all. The phrase search is a floor, not a full list: REITs that describe the same thing in other words, such as several of the DST-program REITs in our 721 guide, are not counted. And a REIT using the structure is not the same as a REIT that wants your building: the contribution is a negotiated acquisition, and the risk factors all describe it as something the REIT does when it suits its portfolio.
What the deals look like when they are disclosed. ExchangeRight Income Fund, a non-traded net-lease REIT, is the clearest because it tabulates each one:
| Date | Properties | Purchase price | Unit price | OP units issued |
|---|---|---|---|---|
| April 4, 2025 | 4 | $7,332,000 | $27.37 | 267,886 Class A 721 units |
| May 7, 2025 | 1 | $2,123,000 | $27.37 | 77,572 Class A 721 units |
| October 23, 2025 | 1 | $3,271,000 | $27.17 | 51,410 Class I units |
| 2025 total | 6 (our sum) | $12,726,000 (our sum) | 396,868 units, $10.9 million |
The units covered $10.9 million of the $12.73 million of purchase prices; the 10-K does not break down the rest in that table (our arithmetic on its figures). At December 31, 2025, investors who had done 721 exchanges held 9,182,970 of the partnership's 26,156,853 OP units, or 35.1% (our arithmetic). The sponsor also earns “an amount equal to 1.00% of the net transaction price” of sales of Class A 721 units to the partnership.
Among listed REITs, Postal Realty issued 510,380 OP units in 2025 and 664,182 in 2024 “to certain contributors in connection with portfolio acquisitions,” and Blue Owl Real Estate Net Lease Trust paid for one industrial property with $17.1 million of OP units in 2025. How the units are priced matters to you as the seller: Fortress Net Lease REIT's 10-K says “The value attributable to such units will be determined based on negotiations with the property seller.”
What the OP units come with: lockups, debt and tax protection
The risk factors read the same way across most of the 28 filings, and the operative clauses are the ones a contributor should ask for in writing.
| Term | What the filing says | REIT and source |
|---|---|---|
| Redemption lockup | Redeemable “beginning on and after the date that is 12 months after issuance” | Alpine Income Property Trust, 10-K 0001104659-26-010910 |
| Redemption lockup | Units “must have been outstanding for at least one year” | Essential Properties, 10-K 0001728951-26-000008 |
| Redemption lockup | Restricted “generally one year from issuance” | BXP, 10-K 0001037540-26-000006 |
| Cash or shares | Holders may exchange units “for cash or common shares at our option” | Federal Realty, 10-K 0000034903-26-000017 |
| Cash or shares | Redemption of 721 units is the REIT's choice of cash or shares; it says it intends to pay in Class I shares | ExchangeRight, 10-K 0001193125-26-075069 |
| Debt kept for you | May have to “incur or maintain debt we would otherwise not incur” to protect contributors' basis | Realty Income, 10-K 0000726728-26-000011 |
| Tax protection length | No taxable sale of the contributed storage properties for five years | IPC Alternative REIT, 10-K 0001959961-26-000004 |
| Tax protection length | Agreement “expires on December 14, 2033” | BXP, 10-K 0001037540-26-000006 |
| Tax protection cost | Two properties covered; about $10.4 million liability if sold in taxable sales | Broadstone Net Lease, 10-K 0001424182-26-000012 |
| Tax protection absent | “no such protection arrangements existed as of December 31, 2025” | JBG SMITH, 10-K 0001104659-26-016450 |
| How protected property can be sold | Only by a section 1031 exchange or another tax-deferred transaction | Brandywine, 10-K 0000790816-26-000008 |
A tax protection agreement is the contributor's main defence against the REIT selling your old building the next year and passing your built-in gain back to you. Several 10-Ks treat it as a cost the REIT accepts only for contributions large enough to justify it, and JBG SMITH had none in force. For an owner contributing a single $2 million building, it is a point to negotiate, not a default (our reading).
Two dates that can turn the contribution into a sale
The two-year window. Section 707(a)(2)(B) treats a contribution and a related payment back to the partner as a sale when they, “when viewed together, are properly characterized as a sale or exchange of property.” Treas. Reg. 1.707-3(c)(1) sets the presumption: “if within a two-year period a partner transfers property to a partnership and the partnership transfers money or other consideration to the partner (without regard to the order of the transfers), the transfers are presumed to be a sale of the property to the partnership unless the facts and circumstances clearly establish that the transfers do not constitute a sale.” After two years the presumption flips (1.707-3(d)), and payments inside the window that you treat as not a sale must be disclosed to the IRS under 1.707-8.
The regulation's first example uses numbers close to this page's reader: a partner contributes property worth $4,000,000 with a $1,200,000 basis and immediately receives $3,000,000 in cash. The partner “must recognize $2,100,000 of gain,” because three quarters of the property is treated as sold and three quarters of the basis goes with it. Treas. Reg. 1.707-5 adds that if the partnership takes over a mortgage that is not a “qualified liability,” the excess over your share counts as consideration too. In practice (our reading), this is why a contributor who wants some cash at closing, or who refinanced the building shortly before contributing it, needs the numbers run before signing.
The day you leave. Redeeming units is the taxable event the whole structure defers. JBG SMITH's 10-K describes both forms: “If we do elect to acquire your OP Units in exchange for cash or our common shares, the transaction will be treated as a fully taxable sale of your OP Units to us,” and a cash redemption by the partnership itself “likely will be treated as a sale of the OP Units to us in a fully taxable transaction.” Section 731(a)(1) is the general rule behind partial redemptions: gain arises to the extent “money distributed exceeds the adjusted basis” of your interest, and section 731(c) counts marketable securities as money. Because the units cannot go into another 1031 exchange, that sale is where the deferral ends unless you keep the units.
DST first, REIT later: who holds the option
Route 4 is now the most common way an exchanger ends up in a REIT, and the filings show it is usually the REIT's choice, not yours. IPC Alternative Real Estate Income Trust, whose sponsor's DST program began on June 27, 2024, describes an option “giving the Operating Partnership the option, but not the obligation, exercisable in the Operating Partnership's sole and absolute discretion, to require DST investors to exchange their DST interests” for OP units or, in limited cases, cash, exercisable in three-month windows starting at the 24th, 36th and 48th month after the offering closes.
ExchangeRight's 2024 DST mergers worked differently: holders “were offered the opportunity to elect to exchange their interests in the DSTs for cash (taxable), to perform another Code Section 1031 exchange (tax-deferred), or exchange their interests in the DSTs for Class I and Class A 721 Common Units (tax-deferred).” On November 19, 2024 that process took in 23 properties and issued 1,062,023 Class A 721 units. The difference between an option the REIT holds and a choice you hold is the first thing to find in a DST's private placement memorandum. What fourteen REITs with DST programs reported about their own repurchases in mid-2026 is in our 721 exchange guide; ExchangeRight's REIT has its own review.
What an owner with a $500,000 to $5 million gain can do with this
- Decide whether you want a REIT or just want out of management. If the goal is passive income and another 1031 later, a DST (route 2) keeps the chain open. If the goal is diversification you can eventually sell in pieces, OP units (routes 3 and 4) give that up for good.
- For a direct contribution, ask the REIT four questions in writing: how the unit price is set (it is negotiated), when units become redeemable (12 months is the common figure), whether it will sign a tax protection agreement and for how long, and whether it will keep debt allocated to you.
- Do not take cash back inside two years without modelling it. Under Treas. Reg. 1.707-3 it is presumed to be a sale, and a mortgage taken out shortly before contributing can count as cash.
- For a DST, find out who holds the conversion option. An option exercisable in the REIT's “sole and absolute discretion” means the timing of your move into OP units is not yours.
- Read the destination REIT's 10-K risk factor on tax deferred contributions. If it says “we may,” you would be an early contributor and should expect to negotiate everything; if it says “we have,” ask for the terms given to the last contributor.
Our verdict
A 1031 exchange into a REIT, in the literal sense, does not exist: the regulation excludes stock and partnership interests by name. The real choice is between staying in real estate you or a trust own (routes 1 and 2), which keeps future 1031 exchanges open, and moving into a REIT's partnership (routes 3 and 4), which trades that for diversification and an eventual taxable exit on terms the 10-Ks show are negotiated case by case. With a gain in the $500,000 to $5 million range, the two-year rule and the tax protection terms are large enough to deserve a professional reading of the actual agreements before you sign.
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Sources, read and saved on October 10, 2026: 26 U.S.C. 1031 (with amendment and effective-date notes), 721, 731 and 707, United States Code 2024 edition as published by the Government Publishing Office (govinfo.gov); 26 CFR 1.1031(a)-3, 1.707-3 and 1.707-5 on the eCFR (text as of October 6, 2026); Rev. Rul. 2004-86 (Internal Revenue Bulletin 2004-33), Rev. Rul. 2004-59 (IRB 2004-24) and Rev. Rul. 99-5 (IRB 1999-6) from irs.gov; EDGAR full-text search for Form 10-K filings dated October 1, 2025 to October 9, 2026 (our script and its output are saved with the dataset); and the fiscal 2025 Form 10-K of each of the 28 REITs in the census, including ExchangeRight Income Fund (0001193125-26-075069), Postal Realty Trust (0001628280-26-011212), JBG SMITH Properties (0001104659-26-016450), IPC Alternative Real Estate Income Trust (0001959961-26-000004), Realty Income (0000726728-26-000011), BXP (0001037540-26-000006), Broadstone Net Lease (0001424182-26-000012), Alpine Income Property Trust (0001104659-26-010910), Essential Properties Realty Trust (0001728951-26-000008), Fortress Net Lease REIT (0001193125-26-126080), Blue Owl Real Estate Net Lease Trust (0001944366-26-000020), Brandywine Realty Trust (0000790816-26-000008) and Federal Realty Investment Trust (0000034903-26-000017); every accession is in the dataset. Counts, sums and percentages are our arithmetic. Interpretations marked "our reading" are ours. This is analysis of public documents, not investment, legal or tax advice.
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