Title Requirements for 1031 Exchanges

1031 EXCHANGE HANDBOOK ...

TITLE REQUIREMENTS
 
Section 1031 requires the taxpayer on the old property be the same taxpayer on the new property.  Examples of entities holding property are trust corporations, partnerships and LLCs.  If ABC partnership is in title to the old property, ABC partnership must take title to the new property.  If you and your spouse hold title to the old property, you and your spouse must take title to the new property.  However, a husband and wife who are the sole members of an LLC holding qualifying property in a community property state, and who file their tax return jointly, are deemed to be a single member of the LLC.  Since the LLC entity is disregarded for all purposes under the Internal Revenue Code when owned by a single member, a husband and wife in this situation may take title to the Replacement Property in the name of an LLC that they solely own.

Example 1:

Bill owns a rental building in his own name, but wants to buy a new property to be held in the name of a new corporation that he wants to set up.  Can he do this?  No, he must acquire the new property in his own name to complete this exchange.

Example 2:

George who is married to Jane owns a duplex that is titled in his name alone.  Can he take title in the new property in his and Jane’s name?  No, George must first complete his exchange in his own name.  In the alternative, he may take an undivided interest in the property (i.e., Bill as to an undivided fifty percent (50%) interest) to complete his exchange and Jane can take the other fifty percent (50%) interest.  This will only work if Bill’s purchase of the fifty percent (50%) interest will allow him to spend all of his exchange proceeds and trade equal or up in value.