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.