Short answer: Yes, a trust can do a 1031 exchange; the type of trust decides who the taxpayer is. A revocable living trust is disregarded, so you can sell in the trust and buy in your own name. An irrevocable non-grantor trust is a separate taxpayer, so the trust itself must sell and buy the replacement property.
Reviewed by Jon Hilley. Last updated September 29, 2026.
Trusts do 1031 exchanges all the time. The question isn't whether a trust can exchange, but who the IRS sees as the taxpayer. The same-taxpayer rule means the owner who sells must be the owner who buys, and with trusts that answer depends on the type of trust. It is one of the core questions in who can do a 1031 exchange.
For most families, the trust is a revocable living trust used for estate planning, and the exchange works as if the trust weren't there. Irrevocable trusts need more care.
Key rules
- Revocable and grantor trusts are disregarded: the grantor is treated as owning the trust's assets for income tax, so the grantor is the exchanging taxpayer (IRC §§671-677).
- Irrevocable non-grantor trusts stand alone: the trust is its own taxpayer, so the trust must acquire the replacement property (IRC §1031(a)(1)).
- Same deadlines: the trustee must identify replacement property within 45 days and close within 180 days (IRC §1031(a)(3)).
- Trust relationships can make parties related: fiduciary and beneficiary relationships are related-party relationships, which trigger a 2-year holding requirement on exchanges between them (IRC §1031(f); IRC §267(b)).
- Death during the exchange: if the taxpayer dies mid-exchange, the estate can generally complete it; inherited property takes a stepped-up basis (IRC §1014).
1031 exchange with a revocable living trust
Because a revocable trust is ignored for income tax, you can sell property titled in your trust and take title to the replacement in your own name, or the other way around. Most people keep the replacement in the trust for estate planning consistency. The trustee (usually you) signs the exchange agreement and the identification notice.
If you are married and each spouse has a separate trust, check which grantor is treated as owner of the property being sold. That same person or couple must be the buyer.
1031 exchange with an irrevocable trust
If the trust is a non-grantor irrevocable trust, it files its own return and pays its own tax. The trustee must sell and buy in the trust's name. Beneficiaries can't take the proceeds and buy property individually; that is a sale by the trust and a purchase by someone else.
Before listing, check that the trust document gives the trustee power to sell and buy real estate, and that every co-trustee who must sign will be available to sign the identification before day 45.
Some irrevocable trusts are still grantor trusts for income tax, often by design. In that case the grantor is the taxpayer, even though the trust is irrevocable for estate and gift purposes. Confirm the trust's tax status with your CPA or estate attorney before you list the property.
Other kinds of 1031 trust: DSTs and land trusts
You may hear "1031 trust" used for a Delaware statutory trust, which is an investment you buy into, not a way to hold your own property. A properly structured DST interest is treated as real property for exchange purposes (Rev. Rul. 2004-86). Read more in Why use a DST for a 1031 exchange?
Land trusts, used in states such as Illinois, are another variant. The IRS treated the beneficial interest in an Illinois land trust as an interest in real property (Rev. Rul. 92-105), so the beneficiary, not the land trustee, is generally the one exchanging.
Example: when the wrong buyer ends the exchange
Assume an irrevocable non-grantor trust sells a rental. Numbers assume the trust pays tax at the 20% capital gains rate (trusts reach the top rates at far lower income than individuals), 25% on depreciation, plus the 3.8% net investment income tax; state tax not included.
- Net sale price: $1,200,000
- Adjusted basis: $450,000
- Realized gain: $750,000
- Depreciation portion: $200,000 x 25% = $50,000
- Remaining gain: $550,000 x 20% = $110,000
- Net investment income tax: $750,000 x 3.8% = $28,500
- Total federal tax if the exchange fails: $188,500
If the trustee buys a $1,200,000 or larger replacement in the trust's name with all the proceeds, the full $750,000 gain is deferred. If the beneficiaries take title instead, the trust hasn't received replacement property, and the exchange fails. If the same property were in a revocable trust, the grantor could take title personally without a problem.
Other questions investors ask
Can I set up a trust to avoid paying capital gains tax?
Not with a revocable living trust, which doesn't change your income tax. A charitable remainder trust (IRC §664) can sell appreciated property without paying tax at the time of sale, with the gain taxed to you over time through its payments and the remainder going to charity. Property included in your estate at death generally gets a stepped-up basis (IRC §1014).
Who cannot do a 1031 exchange?
The limit is usually the property, not the owner. Individuals, trusts, estates, LLCs, partnerships and corporations can all exchange. What fails is property held primarily for sale, a primary residence, or interests such as partnership shares. See What property qualifies for a 1031 exchange?
Common mistakes
- Titling the replacement in a beneficiary's name: we see families with irrevocable trusts try to "move" property to the next generation during the exchange. It breaks the same-taxpayer rule.
- Not knowing the trust's tax status: the most common problem we see is uncertainty about whether a trust is a grantor trust. Get that answer from the trust's tax preparer before the sale closes.
- Missing the trustee's signature: the identification must be signed by the taxpayer, which for a trust means the trustee. A notice signed only by a beneficiary may not be valid.
