Trending
Written by: Matt Bucklin | ExchangiFi
ExchangiFi has published new research measuring the potential market for Section 351 tax-deferred ETF conversions. Drawing on Federal Reserve data, IRS aggregates, and industry research, the paper estimates that $5.0 trillion in U.S. taxable equity assets are structurally suited to convert into ETF wrappers without triggering immediate capital gains tax. The paper splits the opportunity into three pools. An estimated $2.9 trillion sits in low-basis concentrated single-stock positions held by founders, executives, and long-term investors. Another $1.0 trillion sits in aged direct-indexing accounts with no losses left to harvest. A further $1.1 trillion sits in actively managed taxable equity SMAs losing an estimated 100 to 200 basis points a year or more to turnover-driven tax drag and fees.
For advisors, the duty to diversify a client and the duty to manage their taxes are in direct conflict. A 351 conversion helps resolve both at once. The client diversifies now, the gain is deferred, and the cost basis carries forward. The conversion moves the portfolio into an ETF wrapper where rebalancing no longer sends the client a tax bill. Qualifying is not automatic. The paper walks through the Section 351(e) requirements, including the 25% single-issuer cap, the 50% concentration limit, and the 80% control requirement.
Read or Download the White Paper here.
About ExchangiFi
ExchangiFi operates an independent 351 exchange marketplace connecting wealth managers and ETF issuers to facilitate Section 351 tax-deferred exchanges. The platform automates the compliance testing the structure demands, including the diversification tests, portfolio optimization, and transaction coordination. It replaces manual, error-prone 351 processing with software, so advisors can solve concentrated-position and legacy-SMA positions for clients and issuers can seed fund launches at scale. ExchangiFi is based in Palm Beach Gardens, Florida.