1031 Exchange Questions - Purchasing Property From Family

Can I purchase a property from a family member or related party?

1031 tax law permits the sale of property to a related party if that property is sold at a fair market rate and will be held by the related party for at least two years.  Purchasing a property from a related party is rarely allowed unless the selling party is also doing an exchange and even then strict rules may apply to the transaction.  The IRS has issued some varying court rulings on related party cases and extra consideration and analysis is advisable when considering an exchange involving a related party. 

For purposes of the like-kind exchange rules, the definition of related parties is a combination of related parties as defined under IRC section 267(b) and section 707(b). Related parties include the following:

• Family members (siblings, spouses, ancestors, and lineal descendants)
• An individual and an entity (corporation or partnership) where the individual owns either directly or indirectly more than 50% in value of the entity
• Two entities in which the same individual owns directly or indirectly more than 50% of each
• An estate in which the taxpayer is either the executor or beneficiary of the estate
• A trust in which the taxpayer is the fiduciary and the related party is a beneficiary either of that same trust or a related trust or a fiduciary of a related trust