Proper Title Holding is an irs 1031 exchange requirement
a like-kind exchange requires a like-kind title
HOLDING TITLE IN A 1031 EXCHANGE
Proper title holding is one of the six main IRS rules of a 1031 exchange. This rule tells us that whoever the taxpayer was that sold the old relinquished property must be the same taxpayer to take title to the new replacement property. Let’s look at a few examples to better understand how title should be held in a 1031 Exchange:
Title Holding Example Scenarios
EXAMPLE SCENARIO #1
Rick is the only person on title to his beach condo in Florida. He wants to sell it and do a 1031 exchange for a piece land in California. On the title for his replacement property, he will need to again be the only person on title. Is this acceptable in a 1031 exchange?
Yes. Rick has remained the only person on title for both properties, demonstrating clearly that he is the only taxpayer.
EXAMPLE SCENARIO #2
Once again, Rick is the only person on title to the beach condo in Florida. For his replacement, he wants to join his buddies in a 25% partnership share in a ski cabin in Colorado. Will this qualify for a 1031 exchange?
No. By purchasing a 25% partnership share in a partnership that owns the new condo, Rick did not take title in the same taxpayer that was in title to his relinquished property. A partnership is a different taxpayer than Rick, and this would toast his exchange.
In some situations, holding title isn’t as simple. With over 12 years of experience, 1031 Exchange Connection has worked with clients who have held title in many ways — whether it be partnerships, corporations, LLC’s, or even trusts. We have the experience and knowledge to find solutions to holding and transferring title properly within the guidelines of a 1031 exchange to ensure your 1031 Exchange is accepted by the IRS.