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Alternate to 1031 Exchanges?

721 contribution capital gains

721 Contributions for Community Owners

By Thomas Coury

As a manufactured housing community owner, the thought of selling a property right now may be a little formidable. Many are generational owners with years of hard work put into their community, only now to be hit with a proposed retroactive capital gains tax increase.

Under the Biden administration’s new tax proposal there is a way for manufactured housing community owners to still significantly defer their capital gains tax. While just cashing out is easy and the most common solution, owners will likely be required to make a large tax payment at the sale. Currently, if a property is sold, owners would incur a capital gains tax rate of 15-20%.

Unfortunately, under the new pending tax code changes, we could see the capital gains rate up to 43.4%. This increase would take effect for sales of stock and businesses after the April 28, 2021 announcement. In addition, the more commonly known 1031 exchange that allows investors to defer paying taxes on real estate by rolling profits into their next property is proposed to be limited under the new tax code.

This tax proposal is supposed to target the ”wealthy,” but President Biden seeks to limit 1031 exchanges on transactions with profits exceeding $400,000. With that being said, most mom-and-pop-owned communities would still exceed this price point and likely not qualify for a 1031 exchange, resulting in an increased capital gains tax rate. Luckily, there is a better way for owners to sell their property and significantly defer capital gains tax at the sale — through the 721 transaction.

What is a 721 Contribution, 721 Transaction?

Under this equity swap arrangement, the proprietor can potentially sell their property, continue to receive cash flow, eliminate daily management responsibilities and benefit from significant tax deferral.

The 721 Contribution allows you as a property owner to become an investor in a private equity firm or REIT while adding your asset to an already existing real estate portfolio that is actively managed by a hands-on manager with a proven track record of delivering outsized returns to investors.

The 721 contribution is a less known but often more effective solution that allows the property to be easily transferred while significantly deferring capital gains taxes that have built up over the years.

While it should come as no surprise that many generational owners focus on selling for the highest price possible as they need to reinvest after-tax sale proceeds to live off and eventually pass down to heirs. An often less known and more profitable approach is to defer the tax and let a proven operator compound before-tax sale proceeds. Upon the investment, owners can receive a preferred dividend on the total equity investment in a fund, along with a share of profits in a fund all while having no more managerial duties and significantly deferring their capital gains tax.

The return on your investment could provide similar or even greater cash flow compared to managing and owning a property and potentially solve estate planning issues as it’s often simpler and more practical to pass down a passive investment versus a management-intensive piece of real estate.


Thomas Coury is the marketing and business development coordinator for Crystal View Capital, a private equity firm that specializes in acquisitions of manufactured housing communities and is a leader in providing manufactured community property owners the option of a 721 contribution. If a 721 contribution is of interest, please consult with a financial adviser or estate planning attorney to confirm that a 721 contribution could be the best option for your asset.