Can a Corporation Do a 1031 Exchange? (C-Corp, S-Corp, LLC, Partnership, Trust)
The question usually comes from an owner whose building sits inside a corporation and who's been told, by someone, that only individuals can exchange. That's wrong. Every kind of taxpayer can use Section 1031. What matters is that the entity that sells is the entity that buys, and that's where the real planning lives.
- C-corporations, S-corporations, LLCs, partnerships, trusts, estates, and individuals can all do 1031 exchanges. The statute says 'taxpayer,' not 'individual.'
- The controlling rule is the same-taxpayer requirement: the tax identity that sells the relinquished property must acquire the replacement.
- Disregarded entities (single-member LLCs, revocable living trusts, most DSTs) are invisible for this test, which gives useful flexibility.
- Shareholders and partners cannot exchange their interests in the entity; Section 1031(a)(2) excludes stock and partnership interests.
What the statute actually says
IRC §1031(a)(1) provides that no gain or loss is recognized on the exchange of real property held for productive use in a trade or business or for investment. It never limits who the exchanger can be. A C-corporation selling its warehouse, an S-corporation selling a strip center, a partnership selling an apartment building, or a trust selling farmland all qualify on the same terms as an individual landlord.
The corporation pays the same 45-day and 180-day deadlines, uses a qualified intermediary the same way, and reports on Form 8824 attached to its own return (Form 1120, 1120-S, or 1065).
The rule that matters: same taxpayer in, same taxpayer out
The IRS looks at who holds title and reports the income. If ABC Corp sells, ABC Corp must buy. If the replacement is deeded to the shareholder personally, or to a new LLC the shareholder forms, the exchange fails because the taxpayer that sold isn't the one that acquired.
The workable exceptions are entities the IRS ignores for income tax:
- Single-member LLCs that haven't elected corporate treatment. You can sell in your own name and take title to the replacement in a new single-member LLC (or vice versa) because both are 'you' for tax purposes. This is the most common title change in exchanges and it's safe.
- Revocable living trusts. Grantor trusts are disregarded; the grantor is the taxpayer.
- Delaware Statutory Trusts structured under Rev. Rul. 2004-86, which is why a DST interest counts as direct real estate ownership.
A multi-member LLC taxed as a partnership is not disregarded. Neither is an S-corp. Those entities are the taxpayer.
C-corporations: the double-tax reason to exchange
A C-corp that sells appreciated real estate pays corporate tax on the gain (21% federal), and shareholders pay again when the proceeds are distributed as dividends. A 1031 exchange inside the corporation defers the first layer, and by keeping the asset inside the entity avoids triggering the second. Corporations also pay ordinary rates on all gain (there's no preferential capital gains rate for C-corps), so the deferral is worth more per dollar than it is for an individual.
S-corporations and partnerships: where the friction is
The entity can exchange without difficulty. The trouble starts when the owners want different things. Two partners own a building; one wants to cash out, the other wants to exchange. Because partnership interests can't be exchanged, the partnership must either exchange as a unit (and then distribute cash to the one who wants out, which can create boot problems) or restructure before the sale so each owner holds a direct tenancy-in-common interest in the real estate. That restructuring is the drop-and-swap, and its timing is the single most litigated question in entity exchanges.
S-corp shareholders face the same issue plus one more: distributing appreciated real estate out of an S-corp is itself a taxable event under §311(b), so the 'drop' costs more than it does for a partnership.
Trusts and estates
Irrevocable trusts and estates are separate taxpayers and can exchange in their own name. An estate holding investment property during administration can exchange it; the replacement is then distributed to beneficiaries with the deferral preserved. Revocable trusts are the grantor. Land trusts (common in Illinois and Florida) are generally treated as direct ownership by the beneficiary.
Practical checklist for entity exchanges
- Confirm exactly which entity holds title and files the return for the property. Pull the deed and the last K-1 or 1120.
- Decide now whether all owners want the same outcome. If not, restructure well before listing, ideally in a prior tax year.
- Keep the replacement in the same taxpayer. Title changes between disregarded entities are fine; anything else needs a CPA's sign-off first.
- Engage the qualified intermediary in the entity's name before closing.
- File Form 8824 with the entity's return, and the state equivalents where required.
Frequently asked questions
Can an S-corp do a 1031 exchange?
Yes. The S-corporation exchanges as the taxpayer and must take title to the replacement property itself. The complication is that S-corp shareholders can't exchange their shares, and distributing the property out of the S-corp before a sale is taxable under Section 311(b).
Can an LLC do a 1031 exchange?
Yes. A single-member LLC is disregarded, so the owner and the LLC are the same taxpayer and title can move between them freely. A multi-member LLC taxed as a partnership must exchange as a unit unless it restructures before the sale.
Can I sell property owned by my corporation and buy the replacement in my own name?
No. That breaks the same-taxpayer requirement and the exchange fails. The corporation must acquire the replacement. Moving the replacement to you afterward is a separate, usually taxable, transaction.
Can a partnership do a 1031 exchange if one partner wants cash?
The partnership can exchange and distribute cash to the departing partner, but the cash is boot and the allocation gets complicated. The cleaner route is a drop-and-swap restructuring done well before the sale so each owner holds real estate directly.
Property held in an entity with more than one owner?
The structure has to be right before you list, not after. Let's review the ownership and map the exchange.
See If I Qualify