Continuity of title is an important component of a 1031 exchange. Remember: 1031 exchanges are about deferring taxes. The same taxpayer(s) that sells a property must be the same taxpayer(s) that owns new replacement property(ies). We strongly recommend you check who the owner is. Since exchanging is about taxes, you have to be consistent in reporting the 1031 exchange transaction on the same tax return. For real estate, a good place to check is the online local tax records. Though not universal, the two sources should match – the property is reported on your tax return, and your ownership is recorded at the local courthouse.
As with any rule, there are exceptions. The three exceptions pertaining to the transfer and receipt of exchange property are:
- Revocable Living Trusts
- A single-member limited liability company (LLC), and
- A Delaware Statutory Trust. ( IRS Revenue Bulletin explanation)
These are all considered by the IRS as disregarded entities.
The person(s)/entity on the deed is the exchanger. This same person/entity should purchase, identify, and be on the deed of the replacement property or as one of the exceptions noted above.
If multi-parties are purchasing the replacement, then the exchanger’s percent interest in the property should be clearly stated.
Normally, the QI will compare the relinquished and replacement property names and immediately raise a red flag if they are different. Exchangers should always notify their QI and tax advisor if the replacement property is to be titled differently than the relinquished property.
A full explanation of the exceptions can be found here: [symple_button color=”red” url=”
www.1031.us/wp-content/uploads/DisregardedEntities.pdf” title=”Disregarded Entities” target=”blank” border_radius=””]Disregarded Entities[/symple_button]
Lets us know if you have questions.
We have plenty of reference material on this subject.
