The 1031 exchange related party rules were imposed to prevent mega corporations from engaging in abusive basis shifting. But the IRS applied these rules across the board, even to small Mom & Pop 1031 exchanges.
Related Party Exchange Example
There was a taxpayer who identified three properties (the third property being his mother’s home). For various reasons, the first two identified properties became unavailable so his last available option was to acquire the third identified property (his mother’s home). The taxpayer deferred his taxes on the exchange and the mother didn’t pay any taxes either since it was her primary residence. This was the perfect storm for the IRS – a related party transaction in which nobody paid any taxes. They assumed it was a scheme to avoid the imposition of tax. The IRS went after the taxpayer and ultimately won, which totally muddied the waters in terms of what is and is not permissible.
Historically, the IRS has been pretty tough on smaller investors like this. But more recently, the IRS has issued a number of private letter rulings that seem much more lenient for smaller investors.
Find a 1031 Exchange Company Near You
Find a 1031 exchange company near you to get started on the road to tax deferral under section 1031 of the Internal Revenue Code. CPEC1031, LLC employs skilled qualified intermediaries with more than two decades of experience in the 1031 exchange industry. We are here to guide you through the like-kind exchange process and make sure you are able to defer 100% of your capital gains taxes. To learn more and set up a time to chat with one of our team members, reach out today!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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