1031 exchange child as tenant

Dear 1031x, My mother is 73 and selling her house that was 75% rental. She lived in 25%. She will be receiving 2.3 million. She'll be paying off a mortgage
> of $250,000. After closing costs she'll be left with around 1.9 million. She bought it in 1967 for $23,000. So there really is no cost basis. She is thinking
> about buying 3 properties, putting $200,000 down on each and having her 3 children pay rent to cover the remaining mortgages on the properties. Can these be 1031 exchanges? Are relatives allowed to be tenants in 1031? Also we were wondering, considering her age would it make sense tax wise for her to buy a condo for herself or just rent? Thank you,

 

Dear C:  I really like the plan that you propose.  The children, tenants, can each pick out a home that they want to live in and one day receive by inheritance.  Then they can pay rent to Mom providing her with income as she gets older.  This is a perfectly valid 1031x.  Children can, and often are, tenants in their parent's property.  However, I urge each of you to pay a fair rent to Mom.  If the rent is not close to what it ought to be then the 1031x could be challenged.  However, the tenants (children) could take on additional responsibilities, like paying property taxes, insurance and upkeep on the properties, thereby lowering their rent payments.   As far as Mom buying a condo or renting, at her age, I kind of like the idea of her renting.  She can thereby keep 25% of the sales price (the part she lived in) in the form of cash.  This might give her a comfort level that people her age often like.  I want you to use us for your 1031x.  How can we earn your business?  Sincerely,

Steve Hickox
Attorney / President

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