The short answer
When a funeral home sells, the land, chapel, preparation room and parking can be exchanged, but the firm's name and goodwill, its preneed contracts, vehicles and equipment are business assets taxed outside the exchange, so the purchase price allocation sets how much reaches your qualified intermediary. Public consolidators mostly buy the real estate with the business, so a full sale is the common path; keeping the building and leasing it to the buyer is the alternative that defers the real-estate decision. Apartments where a family lives upstairs, and cemetery plots held for sale, are carved out of the exchange.
At a glance
| Like-kind scope | Land, building and structural components only |
|---|---|
| Business sale | Residual-method allocation; goodwill is Class VII, customer-based intangibles Class VI |
| Business licenses | A license to operate a business on real property is never real property |
| Living quarters | A main-home portion is figured on a separate Form 8824 worksheet |
| Cemetery lots for sale | Real property held primarily for sale is excluded from 1031 |
| Largest consolidator | Owns about 90% of the real estate at its 1,985 locations |
| Second consolidator | Owns 136 of its 155 funeral homes, leases 19 |
The chapel and the land exchange; the name, the preneed book and the coaches are a business sale
A sale of an operating funeral home is an applicable asset acquisition under IRC section 1060. Buyer and seller allocate the price by the residual method and each files Form 8594; a written allocation binds both unless the IRS finds it inappropriate. The Form 8594 instructions put land, buildings, vehicles and equipment in Class V, customer-based intangibles and covenants not to compete in Class VI, and goodwill and going concern value in Class VII.
Only the real property in Class V is like-kind. Treas. Reg. section 1.1031(a)-3 covers the chapel, visitation rooms, the preparation room's plumbing and ventilation, the porte-cochere and the parking lot. Hearses, family cars, removal vans, caskets in inventory, furniture and embalming equipment are personal property, and the regulation says a license or permit to operate a business, such as a funeral establishment or crematory permit, is not real property regardless of state law.
A crematory retort sits on the line. The regulation's factors ask how it was installed, whether it is designed to be moved, what removal would damage and whether it went in during construction; a unit set on its own foundation and vented through the roof may qualify, a modular unit designed for replacement may not.
Two carve-outs specific to funeral homes: the family apartment and cemetery inventory
Many funeral homes include living quarters for the director's family. Section 1031(a)(1) covers property held for business or investment use, so the residence portion is outside the exchange. The Form 8824 instructions direct a seller of property used partly as a main home and partly for business to use two worksheet Forms 8824, one for each part, which lets the home portion use the section 121 exclusion if you qualify and the business portion go through the exchange.
Section 1031(a)(2) excludes real property held primarily for sale. Interment rights and cemetery lots you sell to families are inventory, not investment property, so a combination funeral home and cemetery can exchange the funeral home and the cemetery's operating real estate, but not lots held for sale. Service Corporation International's 2025 Form 10-K shows the scale of that inventory: about 36,000 cemetery acres, roughly 66% developed, with interment rights unsold on about 2,000 developed acres.
Hypothetical: a funeral home sells for $4,000,000, allocated $1,800,000 to land and building, of which $200,000 is the upstairs apartment, $300,000 to vehicles and equipment and $1,900,000 to goodwill and the preneed book. About $1,600,000 can go through the exchange; the apartment is figured under the main-home rules, the vehicles produce section 1245 recapture, and the goodwill is taxable business gain. Run your own numbers with your CPA.
Consolidators usually buy the building too, so a leaseback is a choice you make, not the default
The public filings show how buyers hold real estate. Service Corporation International operated 1,485 funeral locations and 500 cemeteries at the end of 2025, owned about 90% of the real estate and buildings it uses, and spent $101.7 million on business acquisitions and $18.5 million on separate real estate acquisitions in 2025. It cites the preneed backlog of deferred revenue as a principal reason for goodwill in its acquisitions.
Carriage Services' 2025 Form 10-K reports 155 funeral homes in 24 states, owning the real property for 136 and leasing 19. It leases certain funeral homes on terms of one to twenty years, many with renewal options that can extend them up to forty years.
So you have two paths. Sell business and building together and exchange the real-estate allocation now, or sell the business, lease the building to the buyer on a long lease and exchange the building later when you sell it to an investor. The second path keeps rent coming in and lets you pick the timing of the exchange, at the cost of remaining a landlord to a single operator.
Replacement options for a retiring director: passive real estate that does not need you
Most sellers are leaving the profession, so the replacement should not need daily attention. A traditional DST gives a fractional interest in professionally managed property, and Rev. Rul. 2004-86 explains the limits that keep a trust passive. Our guide for business owners becoming passive investors walks through the sequence.
A net-lease DST or a single-tenant property under a long lease is the closest match to the rent a leaseback would have produced. If the building carries a mortgage, the replacement must carry equal or greater debt, or you add cash, to defer everything.
The goodwill and equipment proceeds are taxable. An opportunity zone fund can take capital gain within its own time limit, and an accelerated depreciation fund is one route for ordinary income, subject to passive activity rules your CPA applies.
Buying a funeral home building as replacement property: the operator, the lease and the reuse case before day 45
If you are buying a funeral home leased to an operator, read the lease term, renewal options and guarantor first; the Carriage filing shows leases of up to twenty years with long renewal options, so ask whether yours runs that long. Ask for the location's call volume trend and the operator's financial statements.
Confirm that what you buy is real estate only. If the seller is transferring vehicles, furniture or the crematory unit to you, exchange money spent on them is not like-kind; the incidental property rule in Treas. Reg. section 1.1031(k)-1(c)(5) only keeps such items worth up to 15% of the real estate from counting as a separate identified property.
Underwrite reuse. Funeral homes are often converted houses or single-story buildings with large parking lots in residential zones, and zoning may limit the next use. Name a backup under the three-property rule in paragraph (c)(4) of the same regulation in case zoning or the operator's financials stall the purchase.
Related questions
Can I exchange the whole funeral home sale price?
No. Only the price allocated to land, building and structural components is like-kind; goodwill, preneed contracts, vehicles and equipment are business assets taxed in the year of sale.
I live above the funeral home. What happens to that part?
The residence portion is not business or investment property. The Form 8824 instructions have you split the sale into two worksheets, so the home part can use the section 121 exclusion if you qualify and the business part goes through the exchange.
Can I keep the building, lease it to the buyer and exchange later?
Yes. Real property you lease to the buyer is held for investment, and a later sale of the building can be exchanged; the public filings show consolidators lease some locations on long terms.
Is the crematory part of the real estate?
The building is; the retort is judged under the regulation's permanence factors, and the crematory permit is a business license that is never real property.
Can a cemetery be exchanged?
Cemetery land held for investment or used in the business can be, but lots and interment rights held for sale to families are excluded because section 1031 does not apply to real property held primarily for sale.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- IRC section 1031, Exchange of real property held for productive use or investment
- IRC section 1060, Special allocation rules for certain asset acquisitions
- IRS, Instructions for Form 8594
- IRS, Instructions for Form 8824 (property used partly as home)
- Treas. Reg. section 1.1031(a)-3, Definition of real property
- Treas. Reg. section 1.1031(k)-1, Deferred exchanges (identification and incidental property)
- Rev. Rul. 2004-86
- Service Corporation International, Form 10-K for 2025
- Carriage Services, Form 10-K for 2025