The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Here’s the underlying guideline for this discussion: investors cannot swap their basis to their own advantage, which can be seen as defrauding the IRS.
The hard rule is that the title on the sale property must read the same way as the title on the purchased property. If you’re working with family members, there are rules in place for that as well.
Why do you have to hold a property for two years when dealing with a relative? It’s so that the IRS establishes “intent.” The rule prevents an investor from using a quick series of swaps to shift an undesirable basis.
This works in specific ways according to your family situation. For instance - so you got married! That can be a great thing, because the IRS does not think that in your decision to marry your intent was to shift a tax basis – in other words, it regards it as a legitimate life change. So you can add your new spouse to the title anytime!
On the other hand, many investors see this and they think they can add a daughter or son - forget it! If you are planning your estate and have decided to have a Revocable Living Trust with your Social Security number attached to it, not a newly requested EIN, then you can change the title to your Trust. Otherwise, you’re out of luck.
Good news…YES! The IRS will acknowledge this change.
Yes, the deed needs to be in your name or names as titled on the relinquished property. Purchasing with cash is fine, even if your previous property had some debt. You can always substitute cash for debt.
Marilee Hill is a real estate professional with extensive experience in many aspects of buying and selling properties, as well as 1031 deals. In office and retail sales and leasing, owning and managing her own apartment buildings, and working with formulas and items like DSTs (Delaware Statutory Trusts), Marilee demonstrates how important it is to understand working with people.
She understands the human side of the business, and the value of truthfulness and transparency. The motto “My clients' success is my success” has stood her in good stead, in a market and role where financial savvy and people skills both matter a lot.
Please contact Marilee Hill for your next 1031 Exchange strategy.