1031 Exchange Technical Question: Combining Property Owned by Spouses

In any 1031 exchange you must exchange like-kind relinquished property for like-kind replacement property in order to avail yourself of the capital gains tax savings. That may seem simple on the surface, but it gets much more complicated in certain scenarios. Here’s a technical 1031 exchange question we’ve been hearing a lot recently:

In a 1031 exchange, can you combine property owned by two spouses with property owned by an LLC to make one single purchase?

Combining Properties

The short answer is yes. In a 1031 exchange, you can combine 1031 proceeds from relinquished properties owned by two spouses and also from relinquished properties owned by a business entity (that may be owned by one or more of the spouses).

The ownership of the new replacement property could be taken as tenants-in-common with the ratio of ownership allocated between the co-purchases (spouses and business entity) based upon the amount of exchange funds each contributes towards the purchase of the replacement property.

For example, if the spouses individually contributed $1M of exchange funds, and the business entity contributed $3M of exchange funds for the purchase of the replacement property, then the ratio of ownership would be 25% spouses, and 75% business entity. The deed would show this ownership division with the two co-purchasers receiving title to an undivided tenant-in-common interest in the replacement property.

The deed might read:  Grantor hereby conveys the property to John and Mary Doe, husband and wife as to an undivided 25% tenant-in-common interest; and Doe Enterprises Holding Company, LLC as to an undivided 75% tenant-in-common interest.

CPEC1031, LLC

If you have further questions about 1031 exchanging property involving multiple owners, don’t hesitate to reach out to CPEC1031. Our qualified intermediaries have over two decades of experience facilitating exchanges of all shapes and sizes. Contact us today to learn more about how we can help with your 1031 exchange!

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

How Do You Determine Property Ownership in a 1031 Exchange?

When you do a 1031 exchange the taxpayer that owns the old relinquished property has to receive the new replacement property. That begs the question: “who owns the relinquished property?”

Who Owns the Relinquished Property?

Often, people aren't sure exactly who the official owner of the relinquished property is. They may have a vague recollection that they bought it when they were not married and then later became married and they're not sure if their new spouse is in title on the property.

Additionally, they may have done some estate planning and created an irrevocable trust and they're not sure if this asset got put into the trust. And they may be in certain corporations or partnership and may or may not have contributed this property officially into the business entity.

Finding the Owner

Step one in a 1031 exchange is to determine who is the taxpayer that's going to do this exchange. That's the taxpayer that has officially owned and held the property for investment or business purposes. There's two ways to investigate this. First we can pull a copy of the last vesting deed for the subject property and see who in the public records is shown as the owner of the property.

Next, we can work with the taxpayer and the accounting firm to look at their previous tax returns to see how this property has been dealt with on their tax returns. For example, Susan and Martha may own the property as tenants-in-common on their public record on their deed, but Susan and Martha may have also filed partnership tax returns showing the asset as being in their business entity in their partnership. So we need to delve into this to determine who is the taxpayer that should do the exchange.

• 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

The 3 Ts of Property Ownership

Any commercial property owner will tell you that owning property is a lot of work. In this article, we are going to dive into the 3 Ts of property ownership and discuss why 1031 exchanging into less management intensive properties makes sense.

The 3 Tenets of Property Ownership

1. Tenants – Hard to deal with, unreasonable, unrealistic and unreliable (don’t pay on time, cause problems, demanding, etc.)

2. Trash – Costs of ownership with taxes, sanitation, insurance go up every year

3. Toilets – plumbing and deferred maintenance in old buildings is costly, ongoing and aggravating

Consider DST Management Free Investments

If these 3 Ts are causing you undue stress, consider the management free nature of a DST investment. What are the advantages of DST management free investments? Here are a few benefits:

• Minimal Investment Requirement

• Larger Growth Potential

• Diversification

• Management Free Ownership

• A Clearly Defined Exit Strategy

If you have any questions about the benefits of DST ownership or 1031 exchanges in general, don’t hesitate to reach out to CPEC1031! Our qualified intermediaries have decades of experience facilitating like-kind exchanges of all shapes and sizes. You can find us at our primary office located in downtown Minneapolis, or at one of our satellite offices across 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

How to Change Ownership of a Property after 1031 Exchange

A 1031 exchange allows you to sell a piece of real property and move your sales proceeds into a new property without having to pay capital gains taxes. But what if you want to change ownership of your replacement property after you exchange into it? In this article, we are going to offer some tips for changing ownership of your property after conducting a 1031 exchange.

Changing Ownership

First off – is it possible to change ownership of your property after 1031 exchanging into it? In short, yes. However, there are numerous facts that you need to be aware of so you don’t endanger the validity of your exchange.

Section 1031 requires that the person who conducted the exchange must hold onto their replacement property for investment or business purposes. This is a fundamental rule of 1031 exchanges so it’s vital that you abide by this guideline. If you acquire a replacement property in a 1031 exchange and then turn around and transfer ownership to someone else, the IRS may consider this a violation of the 1031 rules and may void your exchange, leaving you with a big tax bill.

The best advice we can give you is to hold onto your replacement property for a substantial period of time before changing ownership. How long really depends on your situation and the property in question.

1031 Exchanges in Minnesota

The qualified intermediaries at CPEC1031 have twenty years of experience facilitating all types of 1031 exchanges. With our experience and track record, you can rest assured that your exchange is in great hands. Let us handle all the details of your exchange so you don’t have to. Reach out to our 1031 exchange professionals today to learn more about our services and to get your exchange started. We have offices around the country, but our primary location is in downtown Minneapolis.

• 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