What is the Definition of a Related Party in a 1031 Exchange?

If you are an experienced #1031 exchanger, then you already know that special rules apply when you are conducting an exchange with a related party. (If you don’t know about these rules, read up on them here.)

However, you may be unclear on who, exactly, qualifies as a related party. As in so many things, the IRS throws a broad net over this group. The usual suspects are included, like immediate family members (think spouses, parents, children, siblings and grandparents).

But the definition also includes things like an individual and any corporation in which the individual holds an ownership interest of more than 50 percent of the outstanding stock (directly or indirectly). Also included in the related party definition are various related business entities and trusts.

And to further complicate matters, the IRS refuses to give tax deferral to a 1031 exchange if the primary motive is to avoid tax consequences. You can see an example of this in the tax court case of Ocmulgee Fields, Inc., CA-11, No. 09-13395 from August 2010.

If a 1031 exchange is in your future, visit our website to learn more about these powerful tax deferral tools and our qualified intermediary and replacement property locator services.