6 Types of Disregarded Entities That May Be Involved in a 1031 Exchange

Many 1031 exchanges of real estate involve disregarded entities. Here is a summary of some of the various types of entities that can be classified as disregarded entities or DREs, along with some relevant details:

  1. Sole Proprietorships DBA. Sole proprietorships doing business under a business name are not really separate legal entities; they are simply extensions of the individual owner. Income and expenses are reported on the individual’s personal tax return (Form 1040, Schedule C).

  2. Some grantor trusts. Certain grantor trusts are treated as disregarded entities for federal income tax purposes. The income generated by the trust is reported on the grantor's personal tax return.

  3. Single-Member Limited Liability Companies (LLCs). A single-member LLC is treated as a disregarded entity unless it elects to be taxed as a corporation. The owner reports income and expenses on their personal tax return.

  4. Wholly Owned Partnerships. When a partnership has only one unique owner, it is treated as a disregarded entity for tax purposes.

  5. Qualified Subchapter S Subsidiaries (Q-Subs). A Q-Sub is an entity that is wholly owned by an S corporation and is treated as a disregarded entity for tax purposes.

  6. Qualified Real Estate Investment Trust Subsidiaries. These are subsidiaries that qualify under specific IRS rules and are disregarded for tax purposes.

1031 Exchanges Come in Many Forms

1031 exchanges come in a variety of different forms – each with its own benefits. A qualified intermediary can help you determine which type of exchange is best suited to your needs. At CPEC1031, LLC we focus exclusively on the facilitation of 1031 exchanges. Our qualified intermediaries have more than two decades of experience and are on hand to help you through the details of your next like-kind exchange of qualifying real estate. Contact our team of professionals today to set up a time to chat and start realizing the benefits of section 1031.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

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Defer the tax. MAXIMIZE your gain.