Swapping Properties
| Read comments | Add comment / Rate this Article | Article by: Christine Latulip |
Clients occasionally will try to create an exit strategy for property that they own jointly with another party only to find out that they are in jeopardy of blowing their potential tax savings.
This is particularly true with related parties. We recently advised two brothers how to unwind their joint ownership without destroying the tax deferral in the process. The guys developed a plan on paper to swap deeds with each other on pieces of property with similar values. They had convinced themselves that they didn’t need a Section 1031 Exchange to accomplish the task, after all, they agreed on the deal.
The devil is always in the details as the saying goes! Without an Exchange Agreement memorializing the transaction, relatives or not, they were committing audit roulette. The audit of one of their tax returns will lead to the other party almost guaranteed. The added complexity for relatives requires a two year holding period and the filing of Form 8824 for three consecutive years!
The fix is easy, call us and we’ll steer you clear of this mishap before it costs you. Your transaction can potentially be disallowed with all the related fines, fees and penalties, and of course, the capital gains tax you were trying to avoid.
This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.
