A 1031 exchange is open to real estate investors across many entity types, but the property has to be held for investment or business use, the identification and closing deadlines are strict, and a property used solely as a personal residence generally does not qualify.
The appeal of a 1031 exchange is easy to state: sell an investment property, roll the proceeds into another, and defer the capital gains tax you would otherwise owe. Qualifying is where the detail lives - who can do one, which property is eligible, and what quietly disqualifies an exchange. (For the mechanics of running one, see the execution guide; for the deadlines, the deadline guide.)
Who qualifies by entity type
Every ownership structure below can do an exchange, at least in principle. The differences are in the conditions attached and, for one of them, the tax math.
Entity type | Eligible? | Notes |
|---|---|---|
Individual | Yes | The simplest case: a U.S. citizen or resident alien who owns investment property. |
Single-member LLC | Yes | The IRS treats it as a disregarded entity, so you are the owner for tax purposes. |
Multi-member LLC / Partnership | Yes | The entity does the exchange, not the individual partners, and all partners defer proportionally. |
Revocable living trust | Yes | Treated as a disregarded entity during the grantor's lifetime. |
Irrevocable trust | Yes, with conditions | Needs a trustee with clear authority; tax treatment depends on the trust structure, so professional guidance is essential. |
S-corporation | Yes | A pass-through entity; the exchange happens at the entity level. |
C-corporation | Technically yes, rarely advisable | Entity-level tax on gains plus dividend tax on distributions creates double taxation. |
The same taxpayer has to appear on both sides. If your LLC sells, that LLC buys. If you sell as an individual, you buy as an individual.
What property qualifies
The test is use, not type. Property has to be held for investment or for productive use in a trade or business, and the IRS weighs what you actually did with it, not what you say you intended.
Qualifying property includes:
- Rental houses, duplexes, and apartment buildings
- Commercial office buildings, retail centers, and industrial warehouses
- Farm and ranch land held for investment
- Parking lots, storage facilities, marinas, and mobile home parks
- Raw land held for long-term appreciation
- Any combination of the above
Since the 2017 tax law, the like-kind standard for real estate is broad: any U.S. real property held for investment or business is like-kind to any other. A rental house and a commercial building count as a valid swap, and you can trade across property types freely.
What disqualifies a property or exchange
The same use test cuts the other way. Each of these fails for a specific reason.
Disqualifier | Why it fails |
|---|---|
Primary residence | Not held for investment or business use |
Vacation home with heavy personal use | Fails the Rev. Proc. 2008-16 safe harbor |
Dealer or flip inventory | Property held mainly for resale is not investment property |
Foreign real property | U.S. and foreign real property are not like-kind to each other |
Partnership interests | Excluded by statute, even when the partnership holds real estate |
Stocks, bonds, notes, debt instruments | Not real property |
Personal property (equipment, vehicles, and so on) | Excluded since the 2017 TCJA |
How the IRS judges "held for investment"
There is no bright line for "held for investment," so the IRS looks at how you actually treated the property:
- Rental history. Documented rental income reported on Schedule E is the strongest evidence.
- Holding period. No statutory minimum, but short holds draw scrutiny. See our holding period guide.
- Active management. Property management records, maintenance receipts, and lease agreements all show investment conduct.
- Tax filings. Claiming depreciation on your returns supports the investment characterization.
A property recently converted from personal use to a rental can qualify, but recent conversions get a closer look. For mixed-use situations, consult a tax professional.
Timing requirements
Two deadlines govern every exchange, and they are absolute. No extensions for weekends, holidays, or market conditions.
- 45 days from the sale closing to identify the replacement property in writing to your qualified intermediary (QI), the neutral party who handles the exchange for you.
- 180 days from the sale closing to close on the replacement property, or by the due date of your tax return with extensions, whichever comes first.
Miss either deadline and the exchange fails, and full tax comes due on the entire gain.
Full vs. partial deferral
You are not required to reinvest every dollar of your proceeds. But whatever you hold back becomes boot, the portion of your proceeds that stays taxable.
- Reinvest the full sale price or more, and the entire gain defers.
- Reinvest less, and the difference is boot, taxable up to your realized gain.
A partial exchange is a legitimate way to keep some liquidity. The point is to take the tax hit on purpose, not by accident.
A qualification checklist
Before you sign a sale agreement, confirm:
If all five hold, you likely qualify. Consult a tax professional to confirm before you commit.
Three things decide whether a 1031 exchange works: your entity type has to be eligible, your property has to pass the "held for investment" test, and you have to follow the timing rules exactly. When in doubt, consult a tax professional before you sell.
Frequently asked questions
Can I do a 1031 exchange if I own property through an LLC?
Yes. A single-member LLC is generally treated as a disregarded entity for tax purposes, so the exchange rules apply to you as an individual. A multi-member LLC taxed as a partnership qualifies too. The LLC structure itself doesn't block an exchange, but the IRS still cares that the property was held for investment or productive business use.
What about S-corps and C-corps? Can they do 1031 exchanges?
S-corps can, because they're pass-through entities. A C-corp can technically run an exchange, but it rarely pays off: the C-corp owes entity-level tax on the gain, which often means double taxation. Talk to a CPA before attempting a C-corp exchange.
If I hold property in a revocable living trust, can I still do a 1031 exchange?
Yes. A revocable trust is treated as disregarded for income tax purposes, so the exchange rules follow your personal tax situation. Just make sure the trustee has authority to conduct the exchange and that your documentation clearly shows you as the beneficial owner.
Can I exchange real estate for a note or mortgage?
No. The replacement has to be real estate itself. A note or mortgage is debt, not real property, and this is a disqualifier that catches people by surprise.
Does a primary residence ever qualify for a 1031 exchange?
A property used solely as a personal residence does not qualify. Mixed-use cases, such as a property that is partly rented and partly lived in, and properties converted from personal to investment use, can involve more complex analysis. Consult a tax professional to evaluate your specific situation.