1031 Exchange used to purchase property with others?

[David]

Clients are wanting to do a 1031 exchange on property they own and identify property to purchase with their adult children. I know the name on the new property has to be the same name on the new property. However, it isn't clear if, as long as the name on the old property is on the new property, that other names can be included as well. Can this be done as long as their portion of the purchase price of the new property is greater than the cost of their current property?

I wanted to check before I tell these clients that they can't use the 1031 exchange to purchase a property with their kids.

Thanks.

[Max W]

Here is something to start with.

https://www.cpec1031.com/blog/can-a-married-couplepurchase-their-replacement-property-with-a-family-member-as-tenants-in-common

[jklcpa]

David, it is possible have a fractional interest of an undivided interest in a property as the replacement held as tenants-in-common and still be a valid 1031 exchange.  IRS ruled on this with Rev Proc 2002-22 that allows it if the property isn't held as a business, must be as the individual, and other requirements.  How the property is titled, managed, run, controlled, etc. is paramount for this to work, and I'd suggest that you not venture into giving legal advice but suggest that the client hire an attorney that is well versed in tax and real estate laws, and specifically the intricacies of sec 1031, and have a well-qualified intermediary too.

Here are some links to help you:

Rev Proc 2002-22 - lays out the requirements

Article from The Tax Advisor - " Fractional Interests in Property" - specifically discusses your question

Another article from CIRE magazine (Commercial Investment Real Estate) discussing tenancy in common in 1031 exchanges written by a practitioner specializing in these exchanges

 

[Lee B]

1 hour ago, jklcpa said:

David, it is possible have a fractional interest of an undivided interest in a property as the replacement held as tenants-in-common and still be a valid 1031 exchange.  IRS ruled on this with Rev Proc 2002-22 that allows it if the property isn't held as a business, must be as the individual, and other requirements.  How the property is titled, managed, run, controlled, etc. is paramount for this to work, and I'd suggest that you not venture into giving legal advice but suggest that the client hire an attorney that is well versed in tax and real estate laws, and specifically the intricacies of sec 1031, and have a well-qualified intermediary too

 

Excellent advice, in a complex situation like this, there so many ways the exchange could be blown.

[Catherine]

20 hours ago, cbslee said:

there so many ways the exchange could be blown

That is *always* the case, and the more complex the situation, the more minefields laid!  Good luck.