Exchange followed by gift

Hi I hope you can give some advice. My parents own a rental property.  they bought it for $130,000 in 89 and  it now has a FMV of about $450,000.  For tax reasons over the years it has  been devalued about $50,000.  they would like to gift it to us (my husband  and I) as we do not have our own place to live.  However this property is  far from where my husband works.  What are the options? Can they do a 1031 exchange buying a property in a better location.  How  long must they rent the property/own the property before they can gift it  to us.  Once the property is in our name how long must we have it as our  primary residence before we can sell it without being required to pay  capital gains tax.  Sorry there are many questions here.  Thank you for  your help.

Dear J:  In a 1031 exchange both property must be held for investment.  If you really want the 1031 exchange to be unassailable then your parents should 1031 exchange into a new home.  They  should then rent the home to you for two years.  You pay them rent and they report the new home as an investment for two years.  After that they can gift the property to you. Anything shorter than this and the 1031 exchange is in some risk.  We really want to take all of the tax risk out of this because the gain is so large.  Once the property is in your name then you would have to hold it for two more years before you could sell it and claim the $500K section 121 exemption.  This is, therefore, a four year plan.  Does that work for you?  Is there some more urgency to this?  Please chose us for your 1031 exchange services. Sincerely

Steve Hickox
Attorney / President

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