Want to sell my investment property and use 1031 to help sister?

[Kevin Schlomo]

Hi, I'm hoping some can give let me know if this is possible.  Until a few days ago, I had never heard of a 1031 exchange.

I have an investment property in my name I will be selling specifically for the purpose of helping my sister purchase a property of her own.

I was going to sell it then hand over a check to her and let her do what she likes with it under the condition that it is for a place she can live in.

It was suggested in a recent conversation with a real estate investor friend that I do a 1031 to avoid paying taxes so my sister can have a larger amount to work with. If I purchase the new property along with my sister, then do a quit claim deed transferring it over to her after closing, it should be possible.

 I contacted my account and was told it is not possible to do unless I am the sole owner on the deed.

Which is true? Is it possible to do a 1031 exchange and add a new owner to the new property?

Thank you.

[Dave Foster]

@Kevin Schlomo,  It's not a simple answer either way.  If you own a piece of investment property (not one you just purchased to flip)  you can certainly do a 1031 and defer all the tax and depreciation recapture associated with that.  The rules require that in order to defer all tax you must purchase at least as much as you sell and use all of cash proceeds from the sale in the next purchase or purchases..  So if you sell your investment property for $100K you would need to purchase at least $100K in new real estate to defer all tax.  If all you buy is a $100K piece of property you would need to take title to all of it.  But, if you bought a $200K piece of property your sister could take title to the other $100K or 50% of the new property.

You need to talk long and hard to your accountant about doing any kind of 1031 and the quit claiming to her.  There could be all kinds of gain triggers in that and she could accidentally end up in bad shape tax wise.