Can You Gift Your 1031 Replacement Property to Someone Else?

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.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Considerations with Gifted Property

The big benefit of a 1031 exchange is that it allows you to defer taxes on your capital gains from the sale. Determining your capital gains is an important step in the 1031 exchange process. Unfortunately, with gifted property, determining your gain can be a difficult task. In this article, we are going to discuss 1031 exchanges of gifted property and the various things you need to be aware of with such transactions.

How to Determine Gain with Gifted Property

Let’s say your father gifts a property to you. In this situation, you can take his carry-over basis in the property that accrued over his lifetime. This is the case for property gifted after a person has died. If the gift is made during the person’s lifetime, the calculation may be a little different.

In general, you can determine gain by taking the net sales price of the property and subtracting your basis in the property.

Once you determine the gain, you have the option of deferring that gain with a 1031 exchange, so long as the property has been held for a qualified purpose (investment or business use) and meets the various other 1031 exchange benchmarks.

Real Estate Exchanges & Tax Deferral

At CPEC1031, LLC, our intermediaries have twenty years of experience helping clients defer their taxes on the sale of real property. Our intermediaries can help you prepare your documentation, identify your replacement property, and much more. Reach out to our 1031 exchange professionals today to get your exchange off the ground and start deferring taxes on your next real estate sale. While our primary office is located in downtown Minneapolis, we provide services to taxpayers throughout the state of Minnesota and around the United States.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved