What is a related party and can the taxpayer do an exchange with them?
This is an evolving area in 1031 exchanges. Generally speaking, if an exchange occurs involving related persons or entities then all exchanged properties must be held by the exchanger and the related party for a period of two years after the date of the last transfer or the exchange will not qualify for tax deferral. Related parties are defined as: lineal ancestors and descendants, brothers and sisters and other entities, which the exchanger owns at least a 10% interest. In a deferred exchange, the exchanger cannot buy from a related party unless tax savings is not an issue.
Related Questions
- What happens if the taxpayer is in escrow to sell the relinquished property and then decides the want to make it part of a tax-deferred Exchange?
- What happens if the taxpayer changes their mind about buying a replacement property and wants to cancel the exchange?
- Can a taxpayer have an exchange with a related party (brother, sister, spouse, child)?
