1031 exchange and rent to family

[Lance Schmidt]

We are moving, and my parents want to sell their rental property. In an effort to avoid long term cap gain tax, is it possible for them to 1031 into another rental and then we rent it from them? Trying to help them avoid cap gain tax since they’re retired. 

[Jon Taylor]

Yes, your parents can do a 1031 exchange into another rental and rent it to you, as long as it's treated like a real investment property. That means you must pay fair market rent, have a formal lease, and they should hold the property as a rental for at least a couple of years. Working with a CPA and qualified intermediary is important to make sure everything stays compliant.