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Who is a Related Party When Doing a 1031 Exchange?

In the context of 1031 exchanges, related parties refer to individuals or entities that have a certain relationship with the taxpayer conducting in the exchange. The Internal Revenue Service (IRS) has specific rules and limitations when selling to or buying from a related party in a 1031 exchange to prevent abuse and ensure that the exchange is conducted for legitimate purposes.


1031 Exchange Related Party.
Related Party Examples: Lineal Ascendants and Descendants

Currently, the IRS defines related parties in a 1031 exchange as:


  • Family Members: This includes relationships such as siblings, spouses, ancestors (e.g., parents and grandparents), and lineal descendants (e.g., children and grandchildren). It also pertains to entities in their ownership/control.


  • Entities under Common Control: This includes situations where there is at least 50% common ownership, either directly or indirectly, between the exchanger and the entity purchasing or selling the property.


  • Certain Business Relationships: This category may include relationships between an individual and a corporation if the individual owns more than 50% of the corporation's outstanding stock by value.



If a related party situation exists, it may still qualify for an exchange if they adhere to additional restrictions and limitations. It's essential to consult with a Qualified Intermediary and a tax professional or legal advisor familiar with current tax laws and regulations. Tax laws can change, and there may be updates or modifications to the rules.

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Disclaimers:

*Prices and fees are subject to change at any time and without warning. Additional fees may apply. Please review our Exchange Agreement carefully for details.

This material is intended for informational purposes only and should not be considered legal or tax advice. Above & Below 1031, LLC does not provide legal or tax advisory services. Please consult legal or tax professionals for specific information regarding your individual situation.

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