All for One & One for All! Part I

All for One & One for All (Part 1)

We had a client, the Smith Family that owned several investment properties. They owned one condo unit that was owned jointly by Mr. and Mrs. Smith, as well as their son Kevin. This property was worth $75,000.  Each of the parties held 33 1/3% ownership worth $25,000 of equity.

The Smiths owned another condo unit that was owned jointly by Mr. and Mrs. Smith. This property was worth $125,000. Mr. and Mrs. Smith each held a 50% interest in this property worth $62,500 of equity.

The Smith’s relinquished both properties and the placed the funds into two separate  1031 exchanges account. The Smiths then identified their replacement properties. One of the properties that the Smith’s identified was a 4 unit apartment building that was worth $200,000.

The Smith (parents and son), wanted to know if it would be acceptable for both exchanges to identify the building and use the 1031 funds from each exchange to purchase the new property.

The answer is, in short, is yes. The Smiths can jointly buy the replacement property, and that would be considered a like-kind exchange.

This scenario brings up an interesting point that the parameters of a 1031 like-kind exchange, allow changes in the what you own as well as who is the owner.  

For example, the parameters of like-kind are not too restrictive as to what qualifies as like-kind as long as both properties are real estate. A real estate investor can relinquish a multifamily apartment building and replace it with an office building or exchange a single family home for a retail property.

This flexibility applies regarding the ownership structure as well.

For example, an investor entering into a 1031 exchange can identify and use his funds to purchase a property even if many other investors are contributing funds.

Regardless if the other contributors are using 1031 funds or are contributing funds as part of a normal real estate transaction.

As long as the exchanger is purchasing their interest as part of a qualified exchange, there is no need for the entire purchase to be made with 1031 funds.

To recap, an investor may relinquish a property in which he is the sole owner and may replace it with a property in which he is merely a partner.

The 1031 exchange may also choose to contribute to the purchase of a property that is being bought with cash or another parties 1031 exchange funds.

 

Can't wait to read the rest? Click here to read part 2 of this fascinating case study.

Got questions about "1031  Exchanges with partners" or other 1031 topics? Click here to ask an expert and get the answers you need.

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