The "Same Tax Payer" Rule for 1031 Exchanges

When it comes to completing a valid 1031 exchange, it’s all about rules. Knowing them. Understanding them. Following them. The IRS is not a very forgiving entity when it comes to bending rules or even taking a generous rule towards interpreting compliance with their complicated tax code. So to maximize your chances of successfully deferring capital gains taxes, it pays to understand all the rules surrounding them.

One of the trickier ones has to do with who is the named entity in the sale and purchase of exchange-related property. In the eyes of the IRS, the tax return and the name on the title of the property being sold must be identical to the tax return and identity of the purchaser of the replacement property. Sounds simple enough, right?

But it can get complicated when you consider that there is an exception to this rule. When a single-member limited liability company is engaged in the transaction, it is permissible for the LLC’s sole member to take title to the new property under his or her own name.

For example, if it is Mark Smith, LLC that owns and sells the relinquished property, the 1031 exchange would still be valid if Mark Smith (the same one who is the sole member of the LLC) purchases the replacement property in his own name.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.