How Do You Determine Property Ownership in a 1031 Exchange?

When you do a 1031 exchange the taxpayer that owns the old relinquished property has to receive the new replacement property. That begs the question: “who owns the relinquished property?”

Who Owns the Relinquished Property?

Often, people aren't sure exactly who the official owner of the relinquished property is. They may have a vague recollection that they bought it when they were not married and then later became married and they're not sure if their new spouse is in title on the property.

Additionally, they may have done some estate planning and created an irrevocable trust and they're not sure if this asset got put into the trust. And they may be in certain corporations or partnership and may or may not have contributed this property officially into the business entity.

Finding the Owner

Step one in a 1031 exchange is to determine who is the taxpayer that's going to do this exchange. That's the taxpayer that has officially owned and held the property for investment or business purposes. There's two ways to investigate this. First we can pull a copy of the last vesting deed for the subject property and see who in the public records is shown as the owner of the property.

Next, we can work with the taxpayer and the accounting firm to look at their previous tax returns to see how this property has been dealt with on their tax returns. For example, Susan and Martha may own the property as tenants-in-common on their public record on their deed, but Susan and Martha may have also filed partnership tax returns showing the asset as being in their business entity in their partnership. So we need to delve into this to determine who is the taxpayer that should do the 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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