All Forum Posts by: Thomas Chen

Hi, Dave:

Great.  Thank you for the clarification.  Yes, the relinquished property is about $600K and the 1031 exchange property will be around $2 mil and we definitely will be very careful in IRS compliance. 

About the transaction, the TIC partner is our son and his wife whose family will use it as their primary residence, but pay us a fair market rent. Our plan is use the $600k as part of the down payment for our son who will contribute their saving and pool the money as down payment, They will secure a mortgage based on their income/debt ratio (I think we may be co-signer if the bank requires it). We will own a % of the $600K/sales price of the new property. So it is one 1031 exchange transaction and our son and his wife are the partner of the TIC. We will collect our % share of the fair market rent monthly

I hope this is not too confusing and is still allowable under the IRS code. Thanks.

Tom

Thanks, Stanley.

Absolutely. We just put our rental property on the market this week and are exploring the possibility of this investment option.  If the feedback from experts on this forum is generally doable, then we will find a reputable institution to handle the entire transaction.  Of course, our son may not be on board after we present them with all the pros and cons. 

Yes, we did read something about additional California 1031 exchange requirements and we want this to be part of our long term estate planning. So we do need an attorney specialized in this area to handle the whole thing. 

If the feedback is negative, then we will do the conventional exchange and find other means to help our son. I am grateful for all the help extended already. 

Thanks again, Jaysen, for the prompt response. And thanks for pointing out how this thread works. I hope this time I am doing it correctly (try to click @). I did click the vote^ last time. I should probably also click Dave Foster as well?

I was doing more research about related party 1031 transactions frowned upon by the IRS – mainly tax base swapping (sell our relinquished property to a related party or buy a like-kind replacement property from a related party or cash out schemes) This is certainly not our intention because we just want to use the proceed to help their down payment and structure everything according to IRS requirements along with our estate planning.

We have indeed explored the 15K/yr/person avenue initially. But as you know, as in Connecticut, $60K is rather small for the $2 million average housing price in the Bay area. That’s why we came up with the idea of selling our rental property to maximize the investment outcome. 

Thank you, Jaysen, for raising potential red flags about this arrangement. Yes, I have read a thread re: 1031 exchange into partnership in which both Mr. Foster and Mr. Exeter have provided valuable insights to some of the questions. The only thing not addressed is the family member part. I am new in BiggerPocket forum, but will definitely reach out to them for help.

Here is the situation. We are selling our rental property through 1031. My son's family is looking for a house in the Bay area (expensive!!!) The have the ability to secure a mortgage but do not have sufficient down payment. So this is where we thought that we may help with the 1031 exchange structured as TIC. They will pay the mortgage and part of our investment in the form of fair market rent. We intend to gift our share to them when we pass away.

I understand the 1031 exchange and TIC is a common practice as far as IRS is concerned. I am very interested in the "sticky" part. Is it the family part that raise the red flag for IRS auditing? Is it the death and inheritance part? If everything is structured according to IRS guidelines and court rulings, what are the potential pitfalls? Thanks for your help.

We are selling our rental property and plan to use the entire proceed to purchase another property through 1031 exchange.  Our idea is to partner with our son and secure a loan to purchase a residence in which his family will live and pay us a monthly rent based on our % investment and fair market rent.  We retain our share during this time as tenant-in-common until he decides to sell the property down the road. Is this allowable under IRS 1031 rules? Is it necessary to use a real estate tax lawyer to structure the exchange deal or a regular 1031 intermediary will suffice.  Thanks very much,