Can you 1031 Exchange to Stock or Crypto?
The IRS allows investors to defer capital gains taxes through a 1031 Exchange, but only when the exchange involves “like-kind” real property held for investment or business purposes. While many investors are curious about diversifying into other asset classes—such as stocks, mutual funds, or cryptocurrency—it’s important to understand that these types of assets do not qualify under Section 1031 of the Internal Revenue Code.
What the IRS Considers “Like-Kind” Property
Under IRS rules, a 1031 Exchange must involve the exchange of one real property for another real property of like kind.
“Real property” refers to land and anything permanently attached to it—such as buildings, structures, and improvements.
“Like-kind” does not mean identical. For example, an apartment building can be exchanged for a retail center or vacant land, as long as both are held for investment or productive use in a trade or business.
Why Stocks and Cryptocurrency Don’t Qualify
In 2017, the Tax Cuts and Jobs Act (TCJA) narrowed the scope of 1031 Exchanges to apply only to real property. Before this change, exchanges involving certain personal property—like aircraft, vehicles, or artwork—could qualify. However, that is no longer the case.
Today, the IRS clearly states that stocks, bonds, partnership interests, and cryptocurrency are not eligible for a 1031 Exchange. These are considered personal property or intangible assets, not real property.
Even if an investor sells an investment property and wishes to reinvest the proceeds into Bitcoin, Ethereum, or another cryptocurrency, that reinvestment does not qualify as a tax-deferred 1031 Exchange. Instead, it would be treated as a taxable sale, with capital gains tax due in the year of the transaction.
Example Scenario
Suppose an investor sells a rental property for $1 million and has $300,000 in taxable gain.
If the investor reinvests in another qualifying real estate property within the 1031 Exchange timeframes, those taxes can be deferred.
If instead the investor uses the proceeds to purchase cryptocurrency or stocks, the IRS will treat it as a taxable event—the gain cannot be deferred.
Alternative Strategies
While 1031 Exchanges are limited to real estate, investors interested in exposure to other asset types might explore other tax strategies, such as:
Opportunity Zone Funds, which allow temporary deferral of gains when reinvested in qualified development zones.
Self-Directed IRAs, which can hold a range of investment types, including cryptocurrency and private real estate, while maintaining tax-advantaged status.
Each of these alternatives follows separate IRS rules and requirements, so investors should consult with their tax advisor to evaluate the best approach for their goals.
Remember
You cannot complete a 1031 Exchange into stocks, bonds, mutual funds, or cryptocurrency. The exchange must involve like-kind real estate—property held for investment or business use. If you’re looking to diversify into other asset classes, it’s best to explore other investment vehicles outside of Section 1031.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Investors should consult with their CPA, attorney, or Qualified Intermediary before initiating any 1031 Exchange.
