Can I Include My Spouse on the Deed in a 1031 Exchange?

Including Your Spouse in a 1031 Exchange

Oftentimes a taxpayer will have purchased a property before marriage, and now they're selling their relinquished property that they own individually and their new spouse is going to have to join in on the deed out. In this article, we will discuss how to approach this type of situation so that your 1031 exchange goes off without a hitch.

It Takes One to Buy – Two to Sell

The old expression is “it takes one to buy, two to sell” - in that the non-titled spouse will have to join in on the deed out to the buyer of the 1031 relinquished property.

Even though the spouse is joining in on the conveyance out to the buyer, they don't have an actual possessory right in the property. Their interest in the property is intangible, particularly in non-community property states.

Inconsistencies in Titled Owners

When you go to acquire your replacement property in a 1031 exchange, if the lender is using the incomes and the financial histories of both the titled spouse and the non-titled spouse, they are going to want both of those spouses to be on title to the new replacement property.

This creates an inconsistency because if only taxpayer A owns the relinquished property, then we would only want to have taxpayer A to acquire the replacement property.

The best way to approach this problem is to talk to your lender upfront. Explain to them that just the husband or just the wife own the relinquished property, they should submit the loan application under only the titled spouse’s name, and make sure that only the titled spouse is going to take title to the replacement property and sign the loan documentation.

Same Taxpayer Requirement

It’s essential to have the same taxpayers that owned the old relinquished property acquire the new replacement property. If however your spouse does want to come in onto the replacement property, that's fine provided they bring in their own cash. They have to ante in their proportionate share of the down payment and the purchase price so that they can ride in as a co-purchaser on the replacement property.

But your exchange funds need to be used exclusively for your purchase and their monies need to be used exclusively to purchase their interest. Absent that you're going to jeopardize your 1031 exchange.

  • 1031 Hotline: If you have questions about 1031 exchanges with spouses, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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