Determining the Tax Owner in a 1031 Exchange of Real Estate

Tax Owner 1031 Exchange

As we’ve discussed before, in a 1031 exchange the same tax owner who sells the relinquished property must also acquire the replacement property. This is one of the most important rules in a 1031 exchange. But what if you want to sell a property you own individually and acquire the new replacement property as part of an LLC? This is where things get tricky. In this article, we are going to discuss the importance of determining the “tax owner” in a 1031 exchange of real estate.

Who is the Tax Owner?

When it comes to 1031 exchanges, the tax owner is the person (or entity) that has the benefits and burdens of ownership. Often the tax owner typically files tax returns for the property and appears on the deed as the title owner of the property. However, that is not always the case. Sometimes the deed will list a disregarded entity as the owner on the deed. Remember, a disregarded entity is an entity (typically an LLC or other business) that is disregarded for federal tax purposes.

The important thing to note is that the tax owner of the property needs to be the same on both the relinquished property and the replacement property in order for the 1031 exchange to be a success.

Real Estate Exchanges

Considering a like-kind exchange of real estate under section 1031 of the Internal Revenue Code? You’ve come to the right place! At Commercial Partners Exchange Company, we have over two decades of experience facilitating exchanges of real property for our clients. Our qualified intermediaries can help you identify replacement property and prepare your documents for closing. Contact us today at our offices in downtown Minneapolis to chat with one of our intermediaries about the tax-saving benefits of a 1031 exchange!

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

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