1031 Exchanges Between Related Parties — and Other 1031 Exchange Issues
Special rules govern 1031 exchanges between related parties, and running afoul of them can turn your tax-free exchange into a taxable sale.
Here is an example:
Brad and Ellis are brothers. Brad lives in Dallas, Texas, where they grew up, and Ellis lives in a suburb of Boston, where he settled after law school. As a result of an inheritance from their grandparents, Brad and Ellis own several houses in Dallas as joint tenants.
They have rented these houses to tenants and divided the expenses and the profits equally between themselves. The largest of these houses is a five bedroom ranch style home sitting on 3.5 acres.
Brad now wants to move into this house, and wants Ellis to sell him his one-half ownership so that Brad can own the house on his own. The house’s fair market value at the time of their inheritance was $600,000. Its current fair market value is $950,000.
Ellis points out [...]
Original post by Fox