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The 351 Exchange: What Investors Need to Know

The ETF world is buzzing over this major tax development—here’s why it matters and what it could mean for investors like you.

Eben Burr
By Eben Burr · January 30, 2025
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351 ETF Exchange

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I am no tax expert, and I am pretty sure this is the only time I am going to talk about tax code with any sort of excitement, but there is a thing called a 351 exchange that I bet you won’t stop thinking about either after this.

Many people know the 351 exchange’s real estate cousin, the 1031 exchange, where a real estate investor can swap one investment property for another and defer the capital gains taxes.

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The 351 exchange, however, allows investors to take low-cost basis investments and exchange them for—in this case, a newly formed ETF—without selling the investment, which would otherwise create a taxable event.

The basic idea is that an investor who has been in the market for a few years likely has some highly appreciated, low-cost basis positions that they’d love to diversify or hedge. But to do that, they’d have to sell and pay taxes. So instead, they do nothing and hold—even though it throws their portfolio balance out of whack.

With a 351 exchange, assuming one meets certain requirements, an investor can take a group of investments and exchange them for shares of a newly formed ETF, allowing them to diversify while deferring taxes.

We are going to start hearing a lot more about these as RIAs roll SMAs into ETFs and as others execute what are called syndicated 351s—where they raise money from scratch to help a wider group of investors diversify out of highly appreciated positions without having to pay Uncle Sam on the way into the new ETF.

Stay tuned for more on this subject. The ETF nerd community is going nuts over this, and it will start to trickle into the normie world soon.

It's important to remember that tax laws are complex, and it's always best to consult with a qualified financial advisor or tax professional before making any decisions.

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Toews Asset Management is an SEC registered investment adviser with its principal place of business in the State of New Jersey.

This presentation may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.

This video is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice, and no representation is being made as to whether the information provided herein would be beneficial for any investor.

For additional information about Toews, including fees and services, send for our disclosure statement as set forth on Form ADV by contacting Toews at Toews Corporation, 1750 Zion Road, Suite 201, Northfield, NJ 08225-1844 or by visiting our website: www.toewscorp.com. 6695294 MK

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