1031 EXCHANGE PROCESS
The primary 1031 exchange rules and requirements include: 1) same taxpayer: the taxpayer who sells is the taxpayer who buys, 2) property identification within 45 calendar days post closing of the first property, 3) purchase of the replacement property within 180 calendar days, 4) trading up: the price of the replacement property is equal to or greater than the old or relinquished property, 5) hold time supports the intent to hold for investment, and 6) related party transaction regulations.
Related Party Transactions
Related party 1031 Exchange transactions occur when you sell your relinquished property to a related party or you buy your like kind replacement property from a related party. Related party 1031 Exchanges are permitted provided you follow specific rules and requirements issued by the Internal Revenue Service.
If the old property is sold to a related party, the property must be held for two years before selling or the tax deferred by the 1031 exchange is due. You can purchase the replacement property from a related party, only if they are also initiating a 1031 exchange.
Related party issues can also be avoided altogether if the related party relationship is eliminated prior to structuring and completing the 1031 Exchange transaction.
Related parties include, but are not limited to, immediate family members, such as brothers, sisters, spouses, ancestors and lineal descendants. Related parties do not include stepparents, uncles, aunts, in-laws, cousins, nephews, nieces and ex-spouses.
Corporations, limited liability companies or partnerships in which more than 50% of the stock, membership interests or partnership interests, or more than 50% of the capital interests or profit interests, is owned by the taxpayer is considered to be a related party.
Lineal Descendant
Lineal descendants are the direct line of relationship flowing downwards from an individual starting with his children, grand children and their children and so on.
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