Short answer: No. Section 1031 applies only to real property held for investment or business use, so you cannot defer the gain on stocks, bonds, mutual funds or REIT shares with a 1031 exchange. You also cannot sell stock and buy real estate, or sell real estate and buy stock. Other tools, such as a §1045 rollover, may help stock sellers.
Reviewed by Jon Hilley. Last updated September 29, 2026.
A stock 1031 exchange is not possible. Under the current 1031 exchange rules, only real property qualifies, and even before 2018 the law expressly excluded stocks, bonds and notes. That exclusion applies in both directions: selling stock to buy a rental does not qualify, and selling a rental to buy stock or REIT shares does not either.
If you want to move from securities into real estate, you pay tax on the stock sale first. Once you own investment real estate, future sales of that property can use a 1031 exchange.
Key rules
- Real property only: exchanges completed after December 31, 2017 are limited to real property (IRC §1031(a)(1); Pub. L. 115-97).
- Securities are not real property: stocks, bonds, notes and partnership or LLC interests do not qualify (IRC §1031(a)(1); Treas. Reg. §1.1031(a)-3).
- REIT shares are securities: you cannot exchange real estate directly into a REIT, though a DST interest can later be contributed to a REIT's operating partnership (IRC §721).
- DST interests are different: a properly structured Delaware statutory trust interest is treated as real property for §1031 (Rev. Rul. 2004-86).
- Small business stock has its own rollover: gain on qualified small business stock held more than six months can be rolled into new QSBS within 60 days (IRC §1045).
Why stocks don't qualify for a 1031
Section 1031 was written for business and investment property. The Tax Cuts and Jobs Act narrowed it further to real property only, removing equipment, vehicles and other personal property as well. Stocks were already out: they were specifically excluded before 2018, and today they fail the basic requirement of being real property. That also means you cannot swap one stock for another tax-free under §1031.
The same logic covers interests in entities that own real estate. Shares of a real estate corporation, units in a multi-member LLC and REIT shares are all securities or entity interests, not real property.
Going from real estate into securities
If you want to sell a rental and diversify into the market, your choices are to pay the tax, spread it with an installment sale (IRC §453), or exchange into a DST that may later be contributed to a REIT's operating partnership under §721. That last path is taxable when you convert or sell the units, and it ends your ability to do future 1031 exchanges.
Is there a 1031 exchange equivalent for stocks?
Not a general one. No provision lets you trade stock for other stock, or stock for real estate, and defer the gain across the board. These tools can defer or reduce tax on stock gains in specific situations:
- §1045 rollover: for qualified small business stock, reinvest in new QSBS within 60 days to defer gain.
- Opportunity zone funds: investing capital gains in a qualified opportunity fund can defer tax under §1400Z-2. The rules were changed by 2025 legislation, so confirm the current rules with your CPA.
- Hold for more than a year: long-term capital gains rates of 0%, 15% or 20% apply only to assets held more than one year; shorter holds are taxed at ordinary rates.
- Tax-loss harvesting: selling losing positions to offset gains, subject to the wash sale rule.
- Charitable remainder trust: contribute appreciated stock to a trust under §664, which can sell without immediate tax.
- Hold until death: heirs generally receive a stepped-up basis (IRC §1014).
- Exchange funds: some private funds pool concentrated stock positions; these have their own requirements, so discuss them with an advisor.
Example: moving from stocks to rental property
- Stock sold: $500,000
- Cost basis: $200,000
- Long-term capital gain: $300,000
- Federal capital gains tax at 15%: $45,000
- Net investment income tax at 3.8%: $11,400
- Total federal tax: $56,400
- Left to invest in real estate: $443,600
Assumptions: a 15% federal capital gains rate plus the 3.8% net investment income tax; state tax is not included. No 1031 exchange is available on the stock sale, so the $56,400 is owed. If the investor later sells the rental bought with the $443,600, that sale can qualify for a 1031 exchange, because the rental is real property held for investment. To compare paying tax with deferring it on real estate, try our capital gains vs 1031 comparison.
Other questions investors ask
How much capital gains tax will I pay on $300,000?
It depends on your income and filing status. If the whole gain is taxed at the 15% long-term rate plus the 3.8% net investment income tax, a $300,000 gain costs $56,400 in federal tax, as in the example above; at the 20% rate the same gain costs $71,400. State tax is extra.
Common mistakes
- Treating REIT shares as real estate: we regularly hear from investors who plan to exchange a rental into a REIT. It does not qualify directly.
- Parking sale proceeds in a brokerage account: once proceeds from a real estate sale reach your own account, the exchange is gone, even if you meant to buy property later. Engage a QI before closing.
- Assuming an LLC interest works: the most common version of this question we get is selling a membership interest in a property-owning LLC. Talk to your CPA or tax attorney about a drop and swap instead.
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