Same Taxpayer Requirements

Same Taxpayer Requirements in 1031 Exchanges

IRC 1031 requires that the same taxpayer that relinquishes property must acquire the replacement property. This requirement is in place to maintain a continuity of tax. But, this requirement does not mean that the same name that held title on the relinquished property must be the name on the replacement property.

For simplicity, if John Doe were to sell property, it would be best for John Doe to take title to the replacement property.And if the ABC LLC were to be the seller, then the ABC LLC should be the purchaser of the replacement property.

When the above is not possible, it is important to understand that the requirement for 1031 is that the same taxpayer that relinquished property must acquire the replacement property. This can be done under different names and still maintain the same taxpayer requirement. If a taxpayer sells under their individual name, they could purchase the replacement property under:

  • Their individual name
  • As a trustee of a Revocable Living Trust
  • Under a single-member limited liability company (LLC) treated as a disregarded entity
  • As a Tenant-in-Common owner of property
  • As a member in a Delaware Statutory Trust (DST).

This will also qualify if an entity is selling property, yet it wishes to create a new entity for the acquisition of replacement property. The taxpayer can work with their tax professional in creating a new LLC which is disregarded for tax purposes. The entity that sold property in the exchange would be the sole member of this new LLC. When structured properly, this will meet the requirements set forth in the tax code.

For more information, please reach out to your tax professional for specific questions or contact the specialists here at Security 1st Exchange for assistance.