Trust/Ownership issues with 1031 Exchange
My wife and I are currently in the process of creating a trust which will hold all of our long term rentals. I am also looking to sell one of my out of state properties. I contacted my exchange company to set up my 1031 process, and they informed me I could be held responsible by the IRS for back taxes, penalties, and legal fees if I get audited. The exchange company said that depending on the IRS auditor (in the scenario I was audited) they would see that the property was purchased in my name (solo), and then placed into a trust with both my wife and my name, therefore eliminating 50 percent of the exchange benefit.
My Attorney setting up my trust (out of state) does not think this is an issue because California is a "common law" state, My Exchange company thinks there is a sizable chance of this happening, and my CPA is split between the two. My CPA is most concerned with the properties I held prior to marriage being treated differently by the IRS, but feel they could all be scrutinized.
This is a huge deal for me because if I lose my ability to 1031 exchange with all of my properties that could be disastrous.
Hopefully someone who is familiar with CA law chimes in as well as anyone else with experience in this dilemma. Thank you in advance!!!