1031 Exchange Requirements

[Dale Osborn]

I am aware of most of the common items of doing a 1031 exchange, but have a question concerning specifics. The question I have is: Can a 1031 exchange be done between family members or does it have to be an arms length transaction? Perhaps what I am looking at does not even matter too much for a 1031 exchange. Iam considering stepping out of the real estate business and selling the property to a relative for the same price we paid for it. Therefore no gain - no capital gains taxes due. I did read somewhere that if sold to a relative they must hold it a minimum of 2 years or there is a chance of capital gains having to be paid. Again, If no capital gains, perhaps this need not apply?

[Bill Exeter]

Hi Dale, this area gets a little tricky. The best way to quickly summarize the answer is this. If you are SELLING to a related party there is a two (2) year holding period. If you are BUYING from a related party the transaction will generally not qualify unless the related party does their own 1031 Exchange or the related party is recognizing capital gains (and paying the related capital gain taxes) that are greater than the capital gain being deferred through the 1031 Exchange. I'm not sure that made sense, so feel free to contact me with questions.