Short answer: Yes. A single-member LLC is disregarded for tax purposes, so the owner and the LLC count as the same taxpayer and can sell in one and buy in the other. A multi-member LLC is taxed as a partnership, so the LLC itself must buy the replacement property. Members can't exchange their LLC interests.
Reviewed by Jon Hilley. Last updated September 29, 2026.
Yes, but how depends on the kind of LLC. For who can do a 1031 exchange, the tax code looks through a single-member LLC to its owner, so a single-member LLC and its owner are the same taxpayer. A multi-member LLC is taxed as a partnership, so the LLC itself is the taxpayer and must complete the 1031 exchange.
That distinction drives almost every planning question: whose name goes on the new deed, whether one member can cash out, and whether members can go their separate ways.
Key rules
- Single-member LLCs are disregarded: the owner is treated as the taxpayer, so you can sell in the LLC and buy in your own name or another single-member LLC you own (Treas. Reg. §301.7701-3).
- Multi-member LLCs are partnerships: the LLC that sells must buy the replacement property (IRC §1031(a)(1)).
- Membership interests don't qualify: an LLC interest isn't real property, so members can't exchange their interests (Treas. Reg. §1.1031(a)-3).
- Drop and swap timing matters: distributing tenant-in-common interests to members shortly before a sale can be challenged (Chase v. Commissioner, 92 T.C. 874 (1989)).
- Related-party limits: exchanges between an LLC and a member who owns more than 50% are related-party exchanges (IRC §1031(f); IRC §707(b)(1)).
Single-member LLC 1031 exchanges
This is the simplest case. Because the LLC is disregarded, the IRS sees only you. You can sell a rental held in "123 Main LLC" and buy the replacement in a new single-member LLC, in your own name, or in your revocable trust, as long as the tax ID behind all of them is yours.
Many investors form a new single-member LLC for each replacement property to limit liability. That's fine for the exchange. Just make sure the new LLC is formed and named on the purchase contract before closing.
Because the LLC is disregarded, selling all of the membership interest in a single-member LLC that owns a property is generally treated as selling the property itself, and buying 100% of a single-member LLC that holds real estate is treated as buying the real estate. That can help when a lender or buyer wants the existing entity kept in place.
Husband-and-wife LLCs
An LLC owned by a married couple is normally taxed as a partnership, not a disregarded entity. In community property states, spouses who own the LLC as community property can choose to treat it as disregarded (Rev. Proc. 2002-69), which makes buying the replacement in your own names much simpler. Check how your LLC files its returns before you sign a contract.
LLCs taxed as corporations
If your LLC elected to be taxed as a C or S corporation, the corporate rules apply: the LLC must buy the replacement property, and members can't take the proceeds. See whether a corporation or S corp can do a 1031 exchange.
Multi-member LLC 1031 exchanges
When two or more people own an LLC taxed as a partnership, the LLC is the exchanger. The LLC signs the exchange agreement, and the replacement deed must be in the LLC's name. Members can't take their share of the proceeds and do their own exchanges.
What if members want different things?
This is the most common issue we see with LLCs. One option is a drop and swap: the LLC distributes tenant-in-common interests in the property to the members, and each member then exchanges or cashes out separately. The earlier the drop happens before the sale, the stronger the position, and courts have gone both ways (compare Magneson v. Commissioner, 753 F.2d 1490 (9th Cir. 1985), with Chase). A drop and swap needs careful planning with a tax attorney.
Another route is a buyout. When one member buys out all the others so the LLC becomes single-member, the buyer is treated as purchasing the real estate attributable to those interests, which can be replacement property in the buyer's own exchange (Rev. Rul. 99-6). The departing members are treated as selling partnership interests, which can't be exchanged.
Example: one member of a three-member LLC wants cash
- Net sale price (no mortgage): $1,800,000
- LLC's adjusted basis: $600,000
- Realized gain: $1,200,000
- Replacement property bought by the LLC: $1,200,000
- Cash kept out for the departing member: $600,000
- Recognized gain (smaller of gain or boot): $600,000
- Deferred gain: $600,000
- Recognized gain per member, equal thirds: $200,000
If the LLC does the exchange and holds back $600,000 in cash, that cash is boot and $600,000 of gain is taxable. Under an operating agreement that allocates gain by ownership percentage, each member reports $200,000, including the two members who wanted full deferral. The replacement property's basis is $600,000 ($1,200,000 minus $600,000 deferred gain). This is why groups with different goals often look at restructuring well before a sale.
Other questions investors ask
Does an LLC avoid capital gains tax?
No. A single-member LLC is ignored for income tax and a multi-member LLC is a pass-through, so gain on a sale flows to the owners' returns and is taxed there. The LLC gives liability protection, not tax savings; a 1031 exchange is what defers the tax.
Common mistakes
- Changing the buyer at the last minute. We see multi-member LLCs sell and then try to close the replacement in one member's name. That's a different taxpayer, and the exchange fails.
- Adding a member between sale and purchase. Converting a single-member LLC to a multi-member LLC mid-exchange changes the taxpayer from you to a partnership.
- Dropping into TIC interests right before closing. A distribution days before the sale invites the argument that the LLC, not the members, really sold the property.
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