Trusts & Ownership in 1031 Exchanges

A 1031 exchange only works if the same taxpayer sells the old property and buys the new one. When property is held in a trust, LLC or partnership, who counts as “the taxpayer” can change the whole plan. 1031 Ventures works with trustees, estate planners and their CPAs to get title right before closing.

Revocable vs. Irrevocable Trusts in a 1031 Exchange: What Trustees Need to Know

Revocable living trusts are usually “grantor trusts” for income tax purposes. That means the IRS ignores the trust and treats you, the grantor, as the owner. You can typically sell property held in your revocable trust and buy replacement property in your own name, or the reverse, and still meet the same-taxpayer rule.

Irrevocable trusts need a closer look:

Some irrevocable trusts are still grantor trusts, such as intentionally defective grantor trusts. Those are generally treated like revocable trusts for exchange purposes.
Most other irrevocable trusts are separate taxpayers. The trust that sells must be the trust that buys.

For trustees: confirm that the trust document lets you sell and buy real estate and sign exchange documents. Sign everything in your capacity as trustee. If a grantor dies during an exchange, call us right away. Exchanges can often still be completed, but the paperwork changes.

Land Trusts and 1031 Exchanges: Title and the Same-Taxpayer Rule

A land trust holds legal title to real estate for privacy or convenience, while the beneficiary keeps control and all the economic benefits. In Revenue Ruling 92-105, the IRS treated a beneficiary’s interest in an Illinois land trust as an interest in real property, not as personal property.

In practice, that means:

Property held in a qualifying title-holding land trust can usually be exchanged as real estate.
You can generally sell property held in a land trust and buy replacement property in your own name, or acquire it through a new land trust, as long as you keep the same beneficial ownership and control.
Texas has no specific land trust statute, so the trust agreement matters. Have your attorney confirm that the trustee’s role is limited to holding title.

Other Ownership Situations We Handle

Single-member LLCs: usually disregarded, so the member is the taxpayer
Multi-member LLCs and partnerships: the entity is the taxpayer, so members who want to go separate ways need advance planning, such as a drop and swap
Married couples and community property: how title is held on each side matters
Estates and heirs: inherited property often receives a stepped-up basis, which can change whether an exchange is worth doing

Not sure how your title should read? Send us the current deed and the trust or entity documents, and we’ll review them with your advisors before you go under contract.

Ready to Start Your 1031 Exchange?

Call before your sale closes. A qualified intermediary has to be in place first.

General information only, not tax or legal advice. Trust and entity questions depend on your documents. Review them with your own attorney and CPA.

Trusts & Ownership in 1031 Exchanges

Revocable vs. Irrevocable Trusts in a 1031 Exchange: What Trustees Need to Know

Land Trusts and 1031 Exchanges: Title and the Same-Taxpayer Rule

Other Ownership Situations We Handle

Ready to Start Your 1031 Exchange?

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