After you have completed a 1031 exchange and have your new like-kind replacement property, you may want to give it away as a gift. This is a huge trap for the unwary, because many people think it is their property, and they should be able to do what ever they want with it.
Satisfying the 1031 Exchange Requirements
Well, if you want to satisfy the requirements of your 1031 exchange, then you should probably not do anything (including gifting) that is inconsistent with holding the new replacement property for investment or use in their trade or business.
The argument can and has been made successfully by the IRS that if you gift the property away shortly after completing a 1031 tax deferred exchange, then you did not have the requisite intent. Your immediate intention to give away property you received in an exchange could undermine your ability to prove your investment or business intent.
Treasury Regulations
Treasury Regulation 26 CFR 1.1002-1(b) and (c) indicates that the IRS can look at surrounding facts and circumstances such as post-exchange transfers of your replacement property as circumstantial evidence that you did not have the proper intent to hold for business or investment purposes.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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