IRS Gives 'Blessing' to Related Parties by Daniel McCabe
1031 Tax-Deferred Exchanges have long been the tax-saving choice of real estate investors looking to trade in their old rental or investment property for a new one. Under the 1031 exchange regulation, the IRS will forego their share of the recognized capital gains on the transaction if the investor plays by the IRS' rules. One of the restrictions under this powerful tax code section has always been that the investor's replacement property could not come from a related party. This poses a problem when the most attractive property available just so happens to be owned by someone you happen to be related to. Well, if you've ever found yourself in this dilemma, the IRS has some good news for you! In the recent release of a private letter ruling (PLR 20040002) the IRS provided taxpayers utilizing code section 1031 with this good news. The IRS informed us that a taxpayer could acquire replacement property from a related party in a 1031 Tax-deferred Exchange, if the related party is also doing a 1031 Exchange. Prior to this ruling, a taxpayer could only sell relinquished property to a related party, but could not purchase his replacement property from a related party. An investor must note, under this letter ruling, both the taxpayer and related party both would hold their replacement properties for at least two years following the exchange. The ruling goes on to say that if either taxpayer has taxable boot in his exchange, this would not blow the whole related party exchange. This is great news for taxpayers who have had their eye on a property owned previously by a related party. Prior to this ruling, there was no way for a taxpayer to utilize the 1031 tax deferred exchange to roll into this related party property. Now, with the new ruling, this highly desired property can now become a reality. It is important to remember that both parties must be doing a 1031 Exchange to qualify this transaction under this ruling. The classic example is where the taxpayer is selling his investment, rental property he has owned for many years. The taxpayer has looked and looked for a suitable replacement property and the most attractive property he can find just so happens to be owned by Mom and Dad. Well, under prior rules and regulations, this property would have been out of the question. Now, with the release of this recent private letter ruling, Mom & Dad's property can now become an option. So long as Mom and Dad will be doing a 1031 exchange out of this property and everyone is willing to hold their replacement properties for at least 2 years, we've got a valid 1031 exchange in the makings! In general, a 1031 Exchange provides for the deferral of capital gains taxes that would otherwise be due upon the sale of appreciated investment property. The tax code requires that replacement investment property be identified within 45 days and the replacement property must be purchased within 180 days -- both from the date of sale of the relinquished property. A Qualified Intermediary (QI) must be used to accommodate this transaction. Investment Exchange Group (IXG) is a Denver, CO, based company offering this service. As one of the nation's most experienced QI's specializing in a wide range of 1031 exchanges, IXG is one of the only companies to have all of the exchange disciplines in-house, including CPA's, attorneys, real estate, banking and title professionals. Senior consultants are Certified Exchange SpecialistsTM passing rigorous background testing and industry ethics certification. As part of IXG's Seven Critical Assurances, all of our 1031 exchanges are fully secured by a $10 million Fidelity Bond. | 
