For those real estate investors who want to move their investment in physical  real estate to the easier passive world of real estate investment trusts (REIT), there is an unfortunate tax hit awaiting them. Using a 1031 exchange is not an option available to you. The IRS views REITs as securities, not real estate, and therefore 1031 exchanges do not apply. An UPREIT and Section 721 can prove to be a tax-savvy tool to turn real estate into better giving.