Mother buying from son 1031 exchange.

Dear Steve:  My Mother owns one rental property and we co-own another one.  However, I live in the one that we co-own.  She wants to sell the one that she owns and 1031 exchange into the property which we co-own, effectively buying me out.  I will then go buy a new principal residence with my sale proceeds.  Does this raise any special 1031 problems? 

 

Dear A:  I have given your Mother's situation serious thought.  She cannot simply sell her property and buy from you as 1031 exchange.  This transaction, because you are a related party, places her tax deferral under section 1031 in jeopardy.  I cannot recommend this.  I am also happy to provide you with the tax authority on which this opinion is based.  Instead, if she must sell, I suggest that she buy a property of your choosing in Washington State, which she then rents to you and holds for investment.  If, at some point, you want to acquire ownership of the Washington State property from her, we can discuss the most tax efficient way to accomplish this.  I hope you will choose us for your 1031 exchange.  Sincerely,

Steve Hickox
Attorney / President

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