Related Persons Exchanges/Self-Dealing Exchanges and Mortgages, Part 4

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.

Related Persons Exchanges/Self Dealing Exchanges and Mortgages, Part 4

There’s this interesting thing that happens when many people approach a 1031 exchange – they start practicing wishful thinking, or in other words, cognitive dissonance.

Maybe they think that the property doesn’t have to be like kind, or there’s no two-year holding period … or self-dealing is totally fine…

These are all pitfalls to a successful 1031 exchange deal, because these requirements do exist and they are hard and fast rules and the IRS is watching.

You can’t just set up loans inside the family and shortcut the process requirements, so it pays to be informed when you start to work on a 1031 exchange deal.

Question 1:
My husband and I married later in life. He has a family trust in which he holds all his property. I have my own family trust in which I hold my own property. Can I sell a rental property in my trust and purchase a rental property from my husbands trust in a 1031 exchange?

Because you are married, this is considered self-dealing. If you’re divorced, you can do it. It’s really that simple

Question 2:
Selling student rental apt. building for %500k. I have appreciated it for 21 years. My CPA tells me I will owe approximately $120k capital gains. I own another rental building which I owe 210k bank mortgage. Will I be able to save any capital gains tax if I apply sale money to mortgage?

Unfortunately, this violates the like kind requirement in that a deed of ownership is not comparable to a lien against a property.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

For free advice on 1031 exchanges, contact Marilee Hill. She has 20 years experience in the business as a real estate broker and property manager, and she understands DST requirements and the security act and everything else as it applies to 1031 exchanges. She’ll point you toward the right resources, for example, a qualified intermediary, and estimate cost and likely outcomes.

Marilee Hill, MA Hill