A Smarter Way to Support Charity: Why Foundations Should Encourage 721 Exchanges Before Accepting Farmland Gifts
Many charitable foundations and donor-advised funds receive offers of farmland as a generous gift from landowners with philanthropic intentions. While the sentiment is admirable, the logistics can be complicated.
Holding farmland often conflicts with a foundation’s mission, operations, or bylaws. Managing or liquidating these assets can be time-consuming, create liability concerns, and require expertise outside the foundation’s core capabilities. In many cases, the land is simply sold—quickly and possibly below market value—to avoid these challenges.
But there’s a better way.
The Power of a 721 Exchange
A Section 721 Exchange allows a farmland owner to contribute their property to a real estate partnership in exchange for operating partnership units—a tax-deferred transaction under IRS Code Section 721. These units are more liquid and easily valued.
Charitable Flexibility for Donors
When farmland owners pursue a 721 Exchange before making a charitable contribution, they unlock powerful advantages:
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Increased Flexibility: Instead of donating illiquid land, the donor can contribute shares or units to a donor-advised fund or charitable foundation.
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Improved Liquidity: Units can be converted into cash over time—useful for donors who want to phase their giving or support multiple causes.
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Tax Efficiency: The 721 structure defers capital gains tax on the farmland, and subsequent charitable donations may qualify for a full fair-market-value deduction.
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No Burden on the Charity: The foundation avoids the complexities of holding or selling land, while still receiving valuable, liquid assets to fund its mission.
Why Foundations Should Advocate for 721 Exchanges
Encouraging potential farmland donors to consider a 721 Exchange benefits everyone involved:
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Donors retain control and optionality in how and when they give.
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Foundations receive clean, easy-to-manage assets that support their mission without added risk or administrative burden.
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Charitable impact is maximized by turning a complex asset into flexible giving power.
Partner with Experts
A 721 Exchange is a specialized transaction that requires experienced legal, tax, and real estate guidance. Foundations should consider partnering the Legacy Farmland Fund; we can educate donors on their options and facilitate the exchange.
If you regularly receive interest from farmland owners or agricultural families, encourage them to explore the 721 Exchange pathway first. It’s a smart, strategic, and flexible approach that turns goodwill into greater giving power—for everyone’s benefit.
