A lot of sellers ask about a 1031 exchange business sale strategy assuming it works the way it used to, and the rules changed enough in 2018 that this is one of the most common tax misconceptions in a business sale.
Quick Answer: 1031 Exchanges and Business Sales
A 1031 exchange business sale strategy today only applies to real property, since the 2018 tax law changes, personal property and business assets (equipment, inventory, goodwill) no longer qualify for like-kind exchange treatment. If your sale includes real estate, that piece may still qualify; the rest of the business generally doesn’t.
What Changed in 2018
Before the Tax Cuts and Jobs Act, 1031 exchanges could apply to a broader range of business property. Since 2018, Section 1031 is limited to real property held for investment or business use, equipment, vehicles, and other personal property are no longer eligible.
What Still Qualifies
If your business sale includes real estate you own (the building your business operates from, for example), that real property component can potentially still be exchanged into another qualifying property, deferring capital gains on that portion.
What Doesn’t Qualify Anymore
Goodwill, equipment, inventory, and the business entity itself are not eligible for 1031 treatment under current law, regardless of how the deal is structured.
Why This Matters Before You Negotiate Structure
Understanding what portion of your sale (if any) is real property matters when structuring the deal, see our guide on asset sale vs entity sale for how that decision interacts with this. For the current federal rules, see the IRS guidance on like-kind exchanges.
FAQ
Can I do a 1031 exchange on my whole business sale? Generally no, only the real property portion of a sale can potentially qualify under current law.
What if my business doesn’t own its real estate? Then a 1031 exchange likely isn’t available to you at all, since there’s no qualifying real property in the transaction.
Is this the same in every state? The federal rule is the same nationally; Florida has no separate state capital gains tax to layer on top, a separate advantage.
Do I need a qualified intermediary? Yes, 1031 exchanges require a qualified intermediary and strict timelines (45 days to identify a replacement property, 180 days to close) even for the real estate portion alone.
Should I plan for this before listing my business? Yes, if real estate is involved, this needs to be discussed with a CPA well before you’re under contract, not after.
Not sure how this applies to your sale? Talk to Truforte Business Group.