The short answer
Take the units if you are finished exchanging, want to sell down in pieces over years, and intend either to hold until death or to accept tax on each redemption. Exchange again if you want to keep the option of direct ownership, plan to keep deferring through further trusts, or carry a loan share that would be cut in the roll-up. The election is irreversible in one direction: units are partnership interests and can never be exchanged under section 1031, while cash is a sale that can start a new exchange if an intermediary is in place first. Before the deadline, answer five questions: whether you will ever want to exchange again, how fast you need cash, how much debt the partnership will allocate to you, what the redemption program actually permits, and who inherits.
At a glance
| The swap | Section 721(a): no gain or loss on contributing property for a partnership interest |
|---|---|
| After the swap | Units are partnership interests, which are not real property for section 1031 |
| Holding period | Tacks from the trust interest under section 1223 because basis carries over |
| Debt | A drop in your share of liabilities is a deemed cash distribution under section 752 |
| Getting out | In the filed program, redemption is for shares, cash or both at the REIT's sole discretion |
| Share repurchases | Capped at 2% of net asset value a month and 5% a quarter; 95% of price under one year; may be suspended |
| Cash election | The same program makes at least 15% of consideration available in cash |
| At death | Units receive a fair market value basis under section 1014 |
The notice asks for an election, and only one answer keeps the exchange route open
The option belongs to the sponsor's REIT, not to you. One non-traded REIT's Form 10-K for 2025 describes a fair market value purchase option giving its operating partnership the right, but not the obligation, to acquire DST interests from investors at a later time, and says investors may make an operating partnership unit election, a cash election or a combination, with at least 15% of the total consideration available in cash when both are offered. Timing the 721 election covers when such windows open; this page is about what to do once yours has.
A unit election is a contribution under section 721(a), which recognizes no gain or loss when property is contributed to a partnership for an interest in it. A cash election is a sale of your interest, taxable unless a qualified intermediary holds the proceeds and you complete a new exchange within the usual deadlines.
Units are the one-way door. Reg. section 1.1031(a)-3(a)(5) lists partnership interests among intangibles that are not real property, so neither the units nor the REIT shares they can become will ever qualify as relinquished property in a later exchange. After a 721, is it no more 1031 sets out the narrow exceptions; none of them is a planning tool.
Question one: will you ever want to exchange again, into a trust or into a building you control?
If the answer is yes, or even maybe, the cash election with an intermediary in place is the only election that preserves it. The replacement can be another trust, a direct title security that lets you decide the next sale date yourself, or a building you manage. Exchanging from one DST into another covers the sequence.
If the answer is a clear no, because you are done with 45-day clocks, offering documents and sponsor calendars, units are designed for you. The deferral continues without any further exchange, and the REIT's portfolio replaces a single trust's property as the thing your money sits in.
Both routes defer the gain today; the difference is whether the next sale is yours to defer again.
Questions two and three: how fast you need cash, and what the partnership will do with your debt
Units are marketed as liquidity in slices, and the filed documents show the limits of that promise. The 10-K says unit holders generally have the right to cause the operating partnership to redeem all or a portion of their units for, at the REIT's sole discretion, shares of common stock, cash or a combination. Shares then fall under a repurchase program that the same filing caps at 2% of aggregate net asset value per month and 5% per quarter, pays 95% of the transaction price on shares held under one year, may redeem fewer shares than requested, and may be modified or suspended by the board at any time.
Every redemption for cash is a taxable sale of a partnership interest under section 741, and a conversion of units into shares is taxed the same way. An investor who expects to need most of the money within a few years is paying tax in instalments plus the program's limits; an investor who wants to sell a small slice a year for twenty years is the one the structure suits.
Debt is the quieter risk. Section 752(b) treats any decrease in your share of partnership liabilities as a distribution of money, and section 731(a)(1) taxes a money distribution to the extent it exceeds your basis in the interest. If your trust loan share was large and your carried basis is small, a roll-up that allocates you less debt can produce gain on the day you elected units to avoid it. Ask the sponsor, in writing, what share of partnership liabilities will be allocated to you.
Questions four and five: what the redemption program really permits, and who inherits
Read the operating partnership agreement and the REIT's current prospectus or 10-K rather than the sponsor's summary; the passages above come from one filed program, and the caps, holding periods and discretion in yours may differ. If the program has suspended or pro-rated repurchases in a recent quarter, the filings show it.
Heirs change the arithmetic. Section 1014 gives property acquired from a decedent a basis equal to fair market value at death, and that reaches units, shares and trust interests alike. For an investor who expects to hold until death, the step-up erases the deferred gain under either election, so the choice turns on which asset is easier for heirs to divide and sell: units redeemable in slices, or a trust interest that waits for the next trust-level sale.
Your holding period in the units tacks from the trust interest under section 1223(1) because the basis carries over, so a redemption soon after the roll-up is still long-term gain. The built-in gain, however, stays yours under the partnership allocation rules, a point 721 UPREIT roll-ups from a DST covers with the seven-year distribution rules.
Hypothetical: a $400,000 interest with a $120,000 carried basis, elected two ways
Round, hypothetical figures. Your trust interest is valued at $400,000 in the option notice, your carried basis after the trust's depreciation is $120,000, and your share of the trust loan was $160,000.
Units: you receive $400,000 of operating partnership units and recognize nothing, provided the partnership allocates you at least $160,000 of its liabilities; if it allocates $100,000, the $60,000 decrease is a deemed distribution that is taxable only to the extent it exceeds your $120,000 basis, so nothing is taxed that day but your basis drops. Redeeming $40,000 of units a year then recognizes gain on each slice, roughly $28,000 a year on these numbers, with the depreciation layer taxed at up to 25% and the rest at capital gain rates.
Cash and exchange: $400,000 goes to the intermediary and you acquire at least $560,000 of replacement, equity plus $160,000 of debt, or add cash in its place. No gain, a new Form 8824, and the next sale is again yours to defer. Ask your CPA to rerun these figures with your actual basis, debt allocation and bracket; the example assumes a ratable recovery of basis on each redemption, which the partnership's allocations may not match.
The structure each answer points to
Investors who keep exchanging usually replace into a traditional, all-cash DST if their old trust was debt-free, into a financed trust or a zero cash flow, cash out DST if a loan share must be replaced, or into a direct title security if they want the next sale date in their own hands. Investors who elect units hold a partnership interest in a REIT and are outside the exchange world from that day.
Either way the risks of a private real estate program remain: no public market for trust interests or units, repurchase programs that can be limited or suspended, distributions that can be cut, and principal that can be lost. Decide on your plans, not on the REIT's recent net asset value.
If the notice allows a mix, a partial unit election with the balance exchanged is also possible, and it lets you test the REIT with a slice while the rest of the money keeps its exchange rights. Can I opt out of a DST's 721 roll-up explains what to do when the trust agreement gives no cash election at all.
Related questions
If I take units now, can I change my mind and exchange next year?
No. Once you hold units you hold a partnership interest, which is not real property under Reg. section 1.1031(a)-3, and a later sale or redemption of the units is simply taxable.
Is the cash election automatically a new exchange?
No. It is a sale unless a qualified intermediary agreement is signed and your interest assigned to it before the roll-up closes; after that, the ordinary 45-day and 180-day rules apply.
Will I get REIT shares or units?
In the filed program described here, units in the operating partnership, which can later be redeemed for shares, cash or a combination at the REIT's discretion. Receiving shares directly would be a taxable exchange rather than a section 721 contribution.
How will my income reporting change?
You move from the trust's grantor statement, which reports your share of rents and expenses, to a Schedule K-1 from the operating partnership that reports your allocations of income, deductions and liabilities.
Can my heirs exchange the units?
No. They inherit units with a stepped-up basis under section 1014, which they can redeem under the program's terms, but the units stay outside section 1031.
Sources
Checked against these publications on October 8, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- SEC, Form 10-K for fiscal 2025 of a non-traded REIT that runs a DST program with a fair market value purchase option
- 26 U.S.C. section 721, Nonrecognition of gain or loss on contribution
- Treas. Reg. section 1.1031(a)-3, Definition of real property
- 26 U.S.C. section 741, Recognition and character of gain or loss on sale or exchange
- 26 U.S.C. section 752, Treatment of certain liabilities
- 26 U.S.C. section 731, Extent of recognition of gain or loss on distribution
- 26 U.S.C. section 1223, Holding period of property
- 26 U.S.C. section 1014, Basis of property acquired from a decedent
- 26 U.S.C. section 1031, Exchange of real property held for productive use or investment