If you’re doing a 1031 exchange with related parties, you want to be really careful, particularly when you’re buying the replacement property from a related party. There was one case in which a son bought his replacement property from his mother and the exchange was disqualified. The IRS has taken these rules that were designed to prevent abuses by big corporations and applied them strictly to little mom and pop shops that may have been unaware of the rules. This is a real trap for the unwary.
In the realm of 1031 exchange, we see related party transactions most often when dealing with farmland. If you’re a farmer and you own an 80 acre tract on the other side of the county and another parcel becomes available closer to your home farm, you may want to sell the outlier and purchase the parcel that’s closer. Invariably, the farmland that’s closer may be owned by a family member. In that context, the form 8824 that you report your 1031 exchange on requires you to disclose if you bought from a related party (either directly or indirectly). You are also required to provide a written narrative of why this isn’t part of a scheme to avoid the imposition of the tax.
Begin the 1031 Exchange Process
Begin the 1031 exchange process today by getting in touch with a qualified intermediary at CPEC1031, LLC. Our like-kind exchange team is standing by and ready to guide you through the ins and outs of your next 1031 exchange of real estate. We have decades of combined experience among our team of 1031 exchange professionals. Let us put that experience to work on your next 1031 exchange and start realizing the tax-saving benefits of the 1031 exchange. Reach out to us today at our Twin Cities office to learn more about our capabilities and see if your property is a good fit for 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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