Executor’s Guide to Completing or Starting a 1031 Exchange for an Estate

The taxpayer after death is the estate or the trust, and it inherits the decedent’s exchange agreement

If the decedent held the property in his or her own name, the estate becomes the taxpayer: the personal representative obtains an EIN, files Form 1041 when gross income reaches $600, and signs for the estate with the qualified intermediary and the title company. Asset Preservation’s vesting guidance puts the rule in one line: ‘If the taxpayer dies during the exchange, the taxpayer’s estate may complete the exchange.’

If the property sat in a revocable living trust, the trust was disregarded during the grantor’s life and turns irrevocable at death, so the successor trustee continues the exchange as trustee; Asset Preservation notes that trusts created at a grantor’s death ‘may be regarded taxpayers and may seek to do 1031 exchanges with the property they hold’ (Trusts and 1031 Exchanges).

What does not work is having the heirs buy the replacement in their own names. The replacement must be acquired by the same taxpayer that sold, so it goes to the estate or trust first and can be distributed afterwards.

Probate does not stop the 45-day and 180-day clocks, and the decedent’s final return can shorten them

Reg. §1.1031(k)-1(b)(2) starts both periods on the day the relinquished property was transferred and ends the exchange period at ‘the earlier of the 180th day thereafter or the due date (including extensions)’ of the return for the year of sale. For a December sale by someone who dies in January, the decedent’s final Form 1040 is due in April, so the representative should file an extension for that return to keep the full 180 days.

Rev. Proc. 2018-58 is the only published relief, and its §17 applies when an IRS news release announces relief for a federally declared disaster: deadlines falling on or after the disaster date move ‘120 days or to the last day of the general disaster extension period’, whichever is later. A death outside a disaster is not on the list, so a representative who cannot close by day 180 has a failed exchange, not a late one.

The identification the decedent made stands. If day 45 has not passed, the representative can still deliver or change the written list; after day 45 the estate can only close on properties already identified.

Finish or let it fail: a $1,000,000 example shows why timing of death versus closing is everything

Hypothetical: the owner sold a rental for $1,000,000 with an adjusted basis of $400,000, the $1,000,000 went to the intermediary, and the owner died on day 30. If the estate abandons the exchange, the $600,000 gain does not vanish: the sale was complete during life, so Reg. §1.691(a)-2 treats proceeds collected after death from a completed sale as income in respect of a decedent, and §1014(c) denies such items any step-up. CPEC 1031 calls this outcome ‘the most tax inefficient treatment’ available to the estate.

If the estate completes the purchase of a $1,000,000 replacement, no gain is reported on the sale and the $600,000 stays deferred inside the replacement property. CPEC 1031 states that heirs then ‘are receiving the replacement property with a stepped-up basis’; we found no published IRS authority that squarely confirms a step-up for property an estate buys after death, so ask estate counsel to analyse §1014 and §691 before relying on it.

Had the owner died before the sale closed, the property itself would have taken a date-of-death basis of roughly $1,000,000 and the estate could have sold with almost no gain and no exchange. That contrast is the whole decision: an executor holding an unsold property should usually pause and re-price the tax before signing any contract.

Starting a new exchange after death: often unnecessary because of the step-up, sometimes still valuable

Property acquired from a decedent takes a basis equal to ‘the fair market value of the property at the date of the decedent’s death’ under §1014(a)(1), and Pub. 559 confirms it is ‘treated as held more than 1 year’. A sale near appraised value therefore produces little gain, and an exchange buys nothing.

A fresh exchange earns its cost when the estate holds the property for years before selling, when the alternate valuation date lowered the basis, or when the estate wants to move heirs from an active building into passive income rather than hand them cash. An estate or a trust can be the exchanger in its own right, and the 2024 ruling in PLR 202416012 went further: when a testamentary trust terminated and distributed undivided interests to beneficiaries already under a sales contract, the IRS ruled the involuntary distribution ‘will not preclude such Interest from being held for investment’ by the beneficiary who then exchanged.

That ruling describes the cleanest way to let heirs choose individually: distribute tenancy-in-common interests under the instrument’s own terms, then let each heir exchange or take cash. A letter ruling binds only its requester (§6110(k)(3)), so treat it as a map, not a guarantee.

Form 706, the alternate valuation election and the appraisal set every basis the estate will use

For deaths in 2026 the basic exclusion is $15,000,000, and the Form 706 instructions require filing ‘within 9 months after the date of the decedent’s death’, with an automatic six-month extension on Form 4768; a surviving spouse’s portability election needs that timely return even when no tax is due.

§2032 lets the executor value the estate six months after death, but property ‘distributed, sold, exchanged, or otherwise disposed of’ inside those six months is valued on the disposition date, and the election is allowed only if it lowers both the gross estate and the tax. An exchange or sale within the window therefore fixes the value, and the basis, on the closing date.

Order a qualified appraisal as of the date of death for every parcel, because that figure becomes the heirs’ basis, the estate’s gain measure and the number that decides whether any exchange is worth doing.

What the executor should put in front of the CPA, estate counsel and the intermediary in the first week

Bring the documents below to one meeting rather than three, because each adviser needs the others’ answers before acting. Confirm every step with your CPA or attorney, since state probate law and the estate’s own instrument control who may sign.

• Letters testamentary or a trustee certification, so the intermediary and title company can accept the successor’s signature on the exchange documents.
• The exchange agreement, the closing statement and the written identification, with the day-45 and day-180 dates calculated from the relinquished closing.
• The estate’s EIN and a decision on the Form 1041 tax year, plus an extension for the decedent’s final Form 1040 if the exchange straddles its due date.
• A related-party check under §267(b)(13): an executor and a beneficiary are related persons, so an heir buying the replacement from the estate, or the estate buying from an heir, triggers the §1031(f) rules.
• The date-of-death appraisal, the §2032 decision and a written note of the fiduciary reason for continuing or abandoning the exchange.
• Form 8824 for the return of whichever taxpayer completes the exchange, and Form 706 if the gross estate approaches the exclusion or portability is wanted.