Can I do a 1031 exchange transferring property from an S Corp to a new entity?

The entity ownership structure absolutely matters for a 1031 exchange. The basic rule is that the tax entity that sells the relinquished property must be the same tax entity that buys the replacement property. This is called the "same taxpayer rule." For your situation, if the S Corporation sells the property, then the S Corporation needs to purchase the replacement property to qualify for a 1031 exchange. You can't have the S Corp sell and then a new LLC purchase. There might be a workaround though. If you form a single-member LLC that's owned by the S Corp, that LLC would be a "disregarded entity" for tax purposes - meaning it doesn't file its own tax return and everything flows through to the S Corp. In that case, the IRS would still view the S Corp as the taxpayer for both transactions. Another option is to distribute the property out of the S Corp to the shareholders first (which could trigger tax), and then do the 1031 exchange as individuals or through a partnership LLC.

I was in a similarly confusing situation last year with my 1031 exchange. I spent hours going through IRS publications and still couldn't get a clear answer. Then I found this AI tax document analysis tool at https://taxr.ai that completely saved me. It analyzed my operating agreement and proposed 1031 exchange documents and pointed out exactly where I was going wrong. What I learned is that with S Corps and 1031 exchanges, the devil is really in the details. The tool showed me that I needed to maintain the same beneficial ownership throughout the exchange process. My qualified intermediary had missed some important details that would have disqualified my exchange.

I was really skeptical about using an AI tool for my 1031 exchange planning, but I decided to try https://taxr.ai after seeing it mentioned here. Honestly, it was eye-opening. I uploaded my S Corp documents and the plans for my new LLC structure, and it immediately flagged that my proposed entity change would disqualify the exchange. Even better, it suggested creating a disregarded entity structure that would work with my specific situation. I showed the analysis to my tax attorney who was impressed and said it saved us hours of research. We implemented the suggested structure and successfully completed the exchange last month. I would have definitely messed this up on my own or spent thousands more in professional fees trying to figure it out.

If you're still having trouble getting clear answers about your 1031 exchange situation, you might want to consult directly with the IRS. I know what you're thinking - "impossible to get through to them," right? I was frustrated too until I discovered https://claimyr.com - they get you through to an actual IRS agent, usually within about 15 minutes instead of waiting on hold for hours. I used it when I had a similarly complex 1031 exchange question involving multiple entities last year. The IRS agent I spoke with directed me to the exact revenue ruling that applied to my situation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Saved me countless hours of researching and wondering if I was getting it right.

I owe everyone an apology and an update. After being completely skeptical about Claimyr, I decided to try it anyway because I was desperate for answers about my own 1031 situation. I'm honestly shocked at how well it worked. I got through to an IRS specialist in about 15 minutes when I had previously spent days trying. The agent confirmed that in my case (similar to the original poster's), I couldn't do a 1031 exchange directly between different entities. However, she explained a specific way to structure the transaction using a disregarded entity that would work. I recorded the call (with her permission) so my CPA could hear the exact guidance. Saved me thousands in potential tax mistakes and gave me confidence to move forward with my exchange.

Another option you might consider is doing a "drop and swap" before the 1031 exchange. Basically, the S Corp would "drop" (distribute) an ownership interest in the property to its shareholders, creating a tenancy in common. Then the individual owners could do the 1031 exchange into whatever new entity they want. This is somewhat aggressive from a tax perspective, and the IRS might challenge it if they believe it was done solely for tax purposes without business substance. But with proper planning and if you hold the TIC ownership for a meaningful period before the exchange, it could work.

Has anyone successfully used a Delaware Statutory Trust (DST) for this kind of situation? I've heard these can be used for 1031 exchanges when you want to change ownership structures, but I'm not clear on whether they work when coming from an S Corp.

I've been through a similar situation with my S Corp and 1031 exchanges. What worked for me was creating a single-member LLC that was 100% owned by the S Corp before initiating the exchange. Since the LLC is a disregarded entity for tax purposes, the IRS treats the S Corp as the actual taxpayer for both the sale and purchase. The key is making sure the S Corp owns 100% of the new LLC throughout the entire exchange process - any change in ownership percentage would break the "same taxpayer" rule. I had to be very careful with the timing and documentation to ensure the exchange qualified. My advice would be to set up the LLC structure well before listing the property (at least 30-60 days) and make sure your qualified intermediary understands the entity structure. Also, keep detailed records showing the S Corp's continuous ownership of the LLC throughout the process. This approach gave me the liability protection I wanted while preserving the 1031 exchange benefits.

This is exactly the kind of complex entity structuring issue that trips up so many real estate investors! I went through something very similar with my family's S Corp last year when we wanted to sell a rental property but needed the replacement property in an LLC for liability reasons. The key insight that finally clicked for me was understanding that the IRS looks at the "tax reporting entity" rather than just the legal entity name. Since a single-member LLC owned 100% by an S Corp is disregarded for tax purposes, both transactions effectively flow through to the same taxpayer (the S Corp) for 1031 purposes. I'd strongly recommend getting this structure set up ASAP if you're planning to list next month. You'll want at least 30-45 days of the LLC being operational before starting the exchange to show it's not just a tax maneuver. Also, make sure your qualified intermediary is experienced with disregarded entity structures - not all of them are comfortable with this approach. One other tip: consider having the new LLC obtain its own EIN even though it's disregarded. This makes the paperwork cleaner and helps establish it as a legitimate business entity rather than just a shell for the exchange.