Understand Related Party Rules

1. Immediate Family Members- Parents, children, sibling and spouses.

2. Corporations or LLCs in which you own more than 50% interest.

3. Partnerships where you own directly or indirectly over 50% of the capital or profits.

4. Trusts with you as a beneficiary or related grantor.

Both you and the related party must hold the exchanged properties for at least two years(24 months) after the exchange. Selling sooner often results in the deferral being disqualified and the gain becoming taxable, unless an exceptions applies(such as involuntary conversion or death of a taxpayer)

1. Selling a property to a related party and buying replacement property from a different unrelated seller while the related party also completes a 1031 Exchange.

2. Exchanging directly with a family LLC where the entity and taxpayer both hold their respective properties for at least two years.

3. Using a Qualified intermediary(QI) to structure the exchange so the title transfers flow through the QI rather than between families directly.

1. Engage a Qualified Intermediary to draft written exchange agreements and assign contracts. 

2. Disclose the relationship explicitly on Form 8824, Like-Kind Exchanges.

3. Maintain proof of intent to hold each property for investment (Long-Term leases, insurance policies, loan documents, ect.)

1. Involuntary Conversion. If property is destroyed or condemned, early disposition does not invalidate the exchange.

2. Death of either party. The requirement is waived upon the taxpayers death. 

3. Cooperation by both parties. When both participants complete their own qualifying 1031 Exchanges at the same time.

1. Keep the transactions at fair market value- No discounted pricing or non-business motivations.

2. Use independent appraisals and standard closing procedures to verify arms-length terms.

3. Consult with your QI and CPA early to map out deed transfers and deadlines.