Ownership Interests In 1031 Exchanges

A 1031 exchange can be a rewarding yet challenging process for the novice investor. The IRS code is vague and the caselaw interpreting it is inconsistent. One common issue that jeopardizes a qualifying exchange involves ownership.

At its most basic, in order to qualify as a legitimate 1031 exchange, the old (relinquished) property and new (replacement) property must be the same taxpayer. While it is easy to assume that if the titles to both properties mirror each other, then the ownership requirement will have been satisfied, the IRS takes a different approach.

What the IRS actually looks at is how tax returns are filed for both properties to determine whether ownership remained the same. This makes it important for investors considering 1031 exchanges as a long-term investment strategy to pay attention to how property is titled and reported for tax purposes before any 1031 exchange is initiated.

I have seen far too many otherwise-legitimate 1031 exchanges scuttled by the IRS over seemingly minor differences like this.

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