1031 exchange and principal residence

Dear 1031x: Can my son 1031 commercial property in exchange for my home (same  value). then rent the house back to me for 2 years, then gift the house to me at the end of the 2 years?

Dear L:  The IRS does not allow an exchanger to purchase from a related person unless the related party does a 1031 exchange or unless the gain recognized by the related party is greater than the gain deferred by the exchanger.  Neither of these are true for you.  Moreover, the IRS requires that both old and new properties be held for investment.  Because the gift back to you is planned it is very hard to argue that the home is held for investment by your son.  Finally, there are likely to be gift tax issues for your son when he gifts back to you.  In short, I cannot recommend this strategy to you.  Sincerely,

Steve Hickox
Attorney / President