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Can I rent a property from my husband to complete a 1031 exchange?

June 21, 2004


Subject:  1031 Question
From:  Helen
Date:  Sat, 24 Apr 2004

My husband and I have been married for 4 years. We have been living an a small apartment and want to live in our first home. My husband had owned an investment property for 12 years with his sister and brother-in-law. Last year, they decided to sell the property, split the sales price and go their separate ways. In order to defer the taxes, we were forced to do a 1031 exchange.

We would rather move into the property than rent it for 2 years.

I was not part of the investment property, and I was not involved with the sale of that property, but my name is on the documents for the replacement property. Can I move into the property as the renter and have only my name on the bills? Then could my husband live there, too, without being taxed?

Answer

Date:  28 May 2004

Hello Helen,

If you move into that property without renting it for some time first, you could blow up your husbandís exchange and you two will owe the tax on the sale of the apartments. Either you will have to be patient or "bite the bullet" and pay the tax.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

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Can I rent a property from my husband to complete a 1031 exchange?

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