Can you 1031 Exchange into Stock?

1031 exchanges of stock

People sometimes ask if they can do a 1031 into stock. Most people are selling real estate and needing to exchange into other like-kind property. Wouldn’t it be great if we could exchange into stock in IBM or Target or another big Fortune 500 company? This article will discuss the issue of 1031 exchanges and stock.

1031 Treasury Regulations

Unfortunately, when the Treasury regulations were written for the tax code relating to Section 1031 Congress excluded stocks, bonds, and other evidences of indebtedness. So paper such as stock, bonds, and notes are all excluded from 1031 treatment. You can’t exchange into it.

Real Estate Investment Trusts (R.E.I.T.)

What you can exchange it into is other real estate. What some people like to do is acquire a piece of real estate that eventually will be contributed to a real estate investment trust.

They’ll hold that piece of property for a year or two and then contribute it in a section 721 contribution so that piece of real estate that they acquired as the replacement property eventually migrates up to the REIT and turns into shares in the REIT itself. So in a strange roundabout way there's a way to piggyback the section 1031 exchange with a 721 contribution to effectively get to a place where you actually acquired at the end of this shares in an interest in a REIT.

There is no mandated bright line rule that I can direct you to for how long you must hold a property before contributing it to a partnership. Both the tax code and the regulations are void of clarity. There are some tax cases on point; however, most of these authorities are older from before partnership interests were excluded from 1031 treatment in IRC section 1031(a)(2)(D) as a result of the Tax Reform Act of 1984, Pub. L. No.98-369, 98 Stat.494.

  • 1031 Hotline: If you have questions about stocks or interests in business entities such as corporations or partnerships involving 1031 exchanges, feel free to call me at 612-643-1031.

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