Would this scenario qualify for the 1031

Question

I own a property separate from my fiancé. I am looking to sell my investment property and take advantage of the 1031 to help defer the  significant capital gains.  My question is this: if my fiancé buys land and he builds a new house on it of equal value to the net sale of mine, can I then sell my house and buy from him once complete,  so that I can meet the 45 and 180 close rule? My intent would be to use it as an investment property and we  would use it according to the 10 percent or 14 day rules.  The other option is buying from a developer/builder in another state but the build will not be ready until June 2024 which makes it more difficult to fit into the strict deadlines if project is delayed. Any thoughts would be appreciated. Thanks in advance.

Wayne Brooks · Answer

@Dave Foster Is this covered in your book, regarding related parties?

Graham Craig · Answer

As long as you are clear on your timeline,  I think this sounds OK.

Dave Foster · Answer

@Wayne Brooks Thanks for that shout out.  Related parties can be a very sticky subject Account Closed.  However, at this point it's not clear how intertwined you and your fiance's finances are.  A fiance isn't a related party until the ring goes on the finger.  But if you share a bank account, or membership in an LLC or anything like that.  And if you get married and are then audited you might have some splaining to do.  But that's not a strict given.

What would concern me more is that he would need to have a profit reason to sell to you.  Otherwise it could be said that the whole thing was set up to help you avoid tax (which it is).  This might reach the level of a step transaction (a series of legal maneuvers by themselves but that are designed to be used together to simply avoid tax).  Or it might not.  It would definitely be hard to see.

Account Closed · Answer

Thanks so much for your prompt reply.  I spoke with a QI today and she seemed to think that as long as we stay unmarried that it would qualify for the 1031.  We are hoping to move ahead with the first plan which is to purchase a cabin from a developer as an investment property but are waiting on a P and S.  As long as there are no delays, it should work out just fine for next Spring coinciding with the sale of my investment property.  Fingers crossed that it all works out.  Thanks again for your thoughts.

Would this scenario qualify for the 1031

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