Deeding Daughter Onto Title; Then Selling; Can I 1031 Exchange?

Transfer of Property to Daughter Followed by Immediate Sale of Property

I spoke to an investor today that is selling his rental property and structuring a 1031 Exchange and purchasing replacement rental property.  However, he said that he wanted to add his daughter to the title of his relinquished property that he was selling by deeding 50% to her so that his wife owned 50% and his daughter owned the other 50%. 

I immediately asked why.  The fact that he wanted to transfer the property to his daughter and then immediately sell the property and structure a 1031 Exchange would most likely result in the disqualification of his 1031 Exchange under audit. 

Intent to Hold for Investment is Critical

The reason is that his daughter never acquired the property with the intent to hold it for investment purposes.  She acquired it for immediate resale, and structured a 1031 Exchange to avoid the payment of the capital gain taxes. 

This is a critical issue when structuring 1031 Exchange transactions.  The investor who sells and buys property through a 1031 Tax Deferred Exchange must have the intent to hold both properties for rental, investment or use in a trade or business.  Properties held for sale will not qualify for 1031 Exchange treatment.