A 1031 exchange is generally available to taxpayers who own real estate for investment purposes or for productive use in a trade or business. That can include individuals, LLCs, partnerships, corporations, trusts, and other taxpaying entities, as long as the property being sold and the property being acquired both meet Section 1031 requirements. The IRS states that owners of investment and business property may qualify for Section 1031 deferral, and that exchange treatment applies only to real property held for business or investment use.
In practical terms, that means rental property owners, commercial property owners, and many investors holding appreciated real estate may be eligible. What usually does not qualify is property held primarily for sale, such as fix-and-flip inventory, or property used only as a personal residence. The IRS specifically notes that a main home is not eligible for a like-kind exchange because the property must be held for productive use in a trade or business or for investment.
Eligibility also depends on how the exchange is structured. To defer taxes successfully, the transaction must meet timing, like-kind, and procedural rules, including the use of replacement property that will also be held for investment or business use. Because ownership structure, property use, and transaction details matter, investors should review their specific situation carefully before moving forward with an exchange.