1031 Exchange Questions Husband and Wife

[Julie Smith]

My husband and I have been buying rental properties for several years now and are getting close to reaching our limit of ten each.  We buy 1 solely in my name and 1 solely in his.  When we started this venture about 8 years ago we purchased two properties in both of our names (we didnt understand the Fanny-Freddie rules yet).  Those two properties values have risen over 125,000 each and we would like to sell them both and purchase 4 properties with the money in a 1031 exchange.  

Our issue here is we are both on the title of the houses, which would be only 2 open mortgage slots.  We would like to sell both houses and then buy 2 in my name and 2 in my husbands name.  Is this possible with a 1031, do I need a quit claim or refinance before doing this?  Any advice would be helpful.

Thanks,
Julie

[Lauren Speidel]

@John Warren Thanks for the mention!

@Julie Smith There is a requirement called the same tax paying entity requirement when you are engaging in a 1031 Exchange. The same tax paying entity that has held the relinquished property must be the same tax paying entity that must purchase the replacement. It would be up to your tax advisor or CPA to determine if you can each purchase a replacement in your individual names and it satisfy your same tax paying entity requirement. It may depend on if you live in a community property state, if you filed your taxes together, etc. 

If you do decide to do a cash out refinance, it's probably best to do that now and season the refinance for 6+ months. If you do a cash out refinance now and sell shortly after, under audit it could look like you were not planning on reinvesting all of your proceeds which is a requirement for a fully tax deferred exchange.