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Why perform a 721 Exchange?

A 721 exchange is an exchange of real estate for shares in a partnership. A 721 exchange is an exchange of real estate for shares in a partnership. Widely used for commercial real estate since its creation by the IRS, Sower’s Legacy Farmland Fund now brings this simple and powerful solution to farmland owners, successors and tenants. Legacy Farmland Fund allows farmland owners to defer capital gains taxes and avoid the loss of value that occurs during a traditional sale.

Converting your farm into Fund Units gives you:

• Capital Gains Deferment
• Asset Diversification
• Monetization
• Control
• Charitable Gifting Ease & Efficiency
• Management Relief
• Legacy Preservation

And, the flexibility to Retain, Sell, Gift or Divide shares to heirs efficiently and fairly.

Benefits

While shares are held, shareholders enjoy many benefits, including access to capital, income and the protection of diversified holdings.

Access to capital: Unit holders can pledge shares to borrow money for elder support care services through Legacy’s credit relationship with Farm Credit Services of America, without having to sell shares and incur capital gains tax.

Income: While shares are owned, shareholders receive passive income as the shares owned yield quarterly dividends and appreciation.

Protection with Diversity: Retaining unit ownership in a broad portfolio of farmland results in the ability to take advantage of future revenue sources derived from the entire portfolio – like wind, solar, wetlands, easements, mineral rights and of course revenue from crop production.

One of the most profound benefits is the ability to plan for one’s own estate as well as heirs. Share ownership in Legacy’s 721 Exchange means a once static asset like farmland is able to be easily divided amongst heirs, providing shareholders with ultimate flexibility in gifting, bequeathing and retaining shares for themselves.

How Does It Work?

Internal Revenue Code Section 721 states that if a property is contributed to a partnership in exchange for an interest in the partnership, no gain or loss will be recognized from the exchange.

A 721 exchange does not trigger a taxable event, and the IRS will not collect taxes on any realized capital gains from the property sale. In brief, here’s how the 721 exchange process works:

YOUR FARM

721 EXCHANGE FUND

PARTNERSHIP SHARES

LEGACY PRESERVATION

Transfer the farm into the Legacy Farmland Fund, a tax-deferred 721 Exchange, that converts a physical farm into Fund Units, that are now owned and can be gifted, sold or kept.

A 721 tax-deferred exchange can provide farmland owners with many more benefits. Understanding this valuable tool can save farmland owners thousands of dollars in addition to flexibility heretofore unavailable.

Professional Fund managers mean shareholders benefit from financial Ag expert that oversee farm acquisitions and dispositions. Additionally, farms are professionally managed with commercial farm management companies that maximize returns with proper lease structures and oversight, discounts, capital improvements & progressive partnerships.

What does the Code of Federal Regulations Say?

26 U.S. Code § 721 – Nonrecognition of gain or loss on contribution

(a) General rule 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.

(b) Special rule Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351) if the partnership were incorporated.

(c) Regulations relating to certain transfers to partnerships. The Secretary may provide by regulations that subsection (a) shall not apply to gain realized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person.

(d)Transfers of intangibles For regulatory author transferred to a partnership as sold, see section 367(d)(3).