Inter-spousal Title transfer prior to 1031 exchange in CA

[Jan H.]

I am planning to do a 1031 exchange with a property that is held in my wife's name. I need to transfer it to my own name as the new (target) property in the 1031 exchange would need to be on my name as it will be contributed to an LLC I am a part of.

Is it possible to do an inter-spousal title transfer now before selling the property in CA to my name and do the exchange after that?

Any advice is appreciated.

Thanks!

[Katie L.]

@Jan H.

You've raised a couple of issues. Firstly, if you're in California, that's a community property state. Sounds like the property is your wife's separate property? If so, is she willing to transmute it to community property? Is your LLC interest community property? Any transmutation needs to be done in writing.

Also, you might want to look into the requirement that the property be held for investment purposes.  Generally, the IRS wants to see at least a year or two of holding the property prior to entering into a 1031 exchange.  The parties on both sides of the exchange (seller and then buyer of new property) must be the same.

Additionally, if you're planning on contributing this property to an LLC, are you the only member in the LLC? Can your wife maybe put the property into a single member LLC and then SMLLC is the seller and purchaser of the new property?

There are several 1031 experts on BP that can probably help you out.  @Dave Foster is a great resource.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.