What Is a 1031 Exchange, and Can You Use It in the Probate & Trust Context?

What Is a 1031 Exchange, and Can You Use It in the Probate & Trust Context?

  • The CREM Group
  • 05/28/24


The CREM Group specializes in court-supervised residential and commercial real estate sales. We are often asked about 1031 exchanges because they come up in conversations among institutional real estate investors as well as families, and individuals investing in real estate as part of their portfolios.

Savvy real estate investors at any level can benefit from the provisions of the 1031 exchange, which is intended to fortify the expanding U.S. real estate industry with an expected value of US$119.80tn in 2024 (that’s 119.80 trillion dollars) according to Statista.com, with the Residential Real Estate market representing $94.39tn of the total. The same source projects a CAGR 2024-2028 of 4.51% bringing the value of the total U.S. real estate market to US$142.90tn by 2028.

But how do 1031 exchanges relate to the probate and trust niche? To answer that, we will

  • Define the 1031 exchange.
  • Talk about who can use it and its benefits, and
  • Discuss how (and if) a 1031 exchange can be utilized in the probate and trust context.


What Is a 1031 Exchange?

A 1031 exchange is also known as a like-kind exchange. It is a provision in the United States Tax Code that allows real estate investors to defer their capital gains taxes when they sell a property if they reinvest the proceeds into another like-kind property. (An example would be an apartment building for an apartment building, but only if they are both in the U.S.) The term "1031 exchange" comes from Section 1031 of the Internal Revenue Code.


Who Can Use a 1031 Exchange?

The 1031 Exchange can be used by people involved in buying and selling real estate for investment purposes when they are intent on achieving capital gains tax deferral after selling their property. By not paying taxes immediately (deferring the taxes), investors can use the profits from a sale to reinvest in more real estate. The idea behind the 1031 exchange is to reward both mega-mogul real estate companies and the ground-level folks when buying and selling residential properties used for business (like rental homes) and commercial real estate properties (like warehouses, shopping malls, and undeveloped land). Note: The CREM Group handles all of these.


The Benefits of the 1031 Exchange Are That They

  • Stimulate activity in the multitrillion-dollar real estate industry.
  • Let investors of all sizes preserve their equity through the tax deferral element.
  • Send signals to investors that they are a valuable part of the entire commercial and residential industry that supports the U.S. economy and our way of life.


When Are 1031s Not a Good Idea?

The idea of a 1031 Exchange, especially the part about deferring taxes, invites many people into an area where they need more clarification on the rules and regulations. Here’s when it’s not a good idea:

  • Using a 1031 exchange for your primary residence is not allowed. This section of the IRC is intended for business and investment properties.
  • Ignoring the 1031 exchange timelines can negate the 1031 exchange protection. A November 2023 Forbes article lists these rules: You have 45 days from your property’s sale date to identify properties you’d like to purchase with the proceeds. Then you have 180 days from the date you sold your initial property to complete the purchase of properties you identified above.
  • Failing to sell properties without a subsequent 1031 exchange triggers a tax event, and the deferred taxes become due. It’s best to consult with experts in real estate and taxes such as The CREM Group and their colleagues.


Should You Use a 1031 Exchange in the Trust and Probate Context?

Using a 1031 exchange in the Trust and Probate context can be tricky. Remember, probate is a legal process that occurs after a person’s death, and the 1031 exchange involves transactions among living people for business and investment purposes.

There may be instances where the 1031 exchange can be used within the probate and trust framework.

  1. If the real estate passes requirements for like-kind exchanges, the Federal 1031 exchange rules and the state’s probate laws must be followed precisely.
  2. The executor of an estate may then begin a 1031 exchange for the property in question.
  3. If a property has been acquired through an exchange process, that property would become part of the estate’s assets and could be treated in the 1031 exchange perspective.


The Differences Between Probate and Non-probate 1031 Exchanges

The purpose, timeline, and initiation of probate vs. non-probate homes differ regarding 1031 exchanges.

  • A probate 1031 exchange aims to optimize the assets of the estate while managing the probate process. A non-probate 1031 exchange’s purpose is aimed at investment benefits and tax deferral.
  • In probate cases, the court determines the speed of the process. The 1031 exchange proceedings will be slowed during the probate process.
  • As noted, in a probate 1031 exchange, the representative or executor of the estate must pursue the exchange on behalf of the deceased. These actions would best be initiated by or in conjunction with trust and probate attorneys and real estate firms familiar with state and federal laws surrounding probate 1031 exchanges.

Should you use a 1031 exchange in probate or trust situations? The answer is a qualified yes. Properly utilizing a 1031 exchange for an estate could give the estate the tax deferral benefits actual human investors use in their business dealings. Caveat: Care must be taken to handle the probate 1031 exchange properly, or the original taxes will be pulled from the estate proceeds. It’s best to avoid these kinds of surprises.



No one wants to pay more taxes than they have to. Moreover, taking advantage of federal laws to promote real estate acquisition helps the economy, your business, and your family.

Ten thirty-one exchanges help grow one’s real estate portfolio and add to the general enjoyment of living in the United States of America. Ten thirty-one (1031) exchange laws should not be taken lightly. Having tax, legal, and real estate counsel in your back pocket is always a good bet.

Even though probate 1031 exchanges add an extra layer of complexity to a probate or trust sale—as the courts are involved in the process—it’s worthwhile looking into it.

The CREM Group specializes in probate and trust real estate, both commercial and residential.

We can advise you on 1031s and many other aspects of this vital real estate niche. It’s our business.

Let’s get in touch.


Disclaimer: This information only introduces intricate 1031 exchange topic. Please refer to the many U.S. Government websites relating to 1031 exchanges and make sure you work with attorneys, tax professionals, and real estate agents with experience.

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