RELATED PARTY 1031 EXCHANGES ALLOWED!
When a 1031 exchanger buys property from a related party, they must proceed with caution to meet IRS requirements. Fortunately, there are new guidelines to follow, as seven recent IRS
Private Letter Rulings have clarified and affirmed the requirements for a related party 1031 exchange. The IRS ruled that indirect exchanges through a Qualified Intermediary between related parties were permitted, despite limited cash received, when both parties agreed to hold their respective replacement properties for at least two years. Additionally, the IRS reaffirmed that a sale of relinquished property to a related party is not subject to the two year rule providing the exchanger purchases their replacement property from an unrelated party.
Should related parties be involved in the exchange, it is critical to meet the two-year holding period requirement. If the taxpayer is purchasing their replacement property from a related party, both the seller and the buyer must complete a 1031 exchange and not sell their replacement properties for two full years after the settlement date.
The definition of a related party as defined from two separate sections of the Internal Revenue
Code includes:
• Family members: siblings, spouses, ancestors and lineal descendants
• An individual and a business entity, in which the individual owns directly or indirectly more than 50% of the entity
• Two business entities if the same individual owns more than 50% of each
• An executor of the estate and the beneficiaries of the estate
• A grantor and a fiduciary of the same trust
Mary Lou Schwab CPA, CES is Vice President at Bankers Escrow
I am experienced in 1031 Exchanges and can help you thru the process, call me -
Shelli Dore, 303.942.0648