Like Kind Exchange

[MGC94]

Taxpayer bought a rental property in 2020 for $132,500. Taxpayer sold the property in 2023 for $200,000, receiving $52,000 from the sale. Taxpayer then purchased a new rental property two months later for $52,000 from the taxpayer's father (this property has a FMV of $340,000). The taxpayer did use a qualified intermediary for the exchange.

Can this qualify for a 1031 exchange? Right now, I am basically looking at it as two separate transactions: a valid 1031 exchange, and a gift of $288,000 from the father. Does this make sense?

[Just-Lisa-Now-]

not a 1031 exchange.

They've got a sale and a new purchase, 2 different things.

[Skylane]

Not sure I'd want to go the 1031 route....

When you sell and buy property as part of a 1031, both the sale and purchase need to be arm's length transactions. This means you can't engage in transactions with family members or other parties you have a personal or close relationship with as part of the exchange.

Pay the CG on the sale.... Say thanks to dad for the gift....   stay out of jail...

[MGC94]

Why would you consider a sale and new purchase and not a 1031? They used a QI, identified the new property within 45 days, closed within 180, and both properties are going to be used for investment purposes. Doesn't this meet all the requirements for a 1031? 

[MGC94]

I'm a little confused on the related party part of this. Everything I'm reading (including form 8824) says that it could be allowed "if the disposition didn't have tax avoidance as one of its principal purposes", but isn't the purpose of all 1031 exchanges to avoid tax? 

[Skylane]

The purpose of the 1031 isn't to avoid tax, it's to defer it. It becomes part of the basis calculation of the new rental property and will reduce the depreciation. 

See the instructions for line 7 and 11 and be sure that you're solid ground.   The facts you presented don't address how you're establishing and adjusting basis of new property.....