Would like to add my wife's name to the title on a home in advance of a 1031

Question

Hey all, I was hoping for some advice on how to get something started:

I'm hoping to sell a single-family investment property in San Antonio, and do a 1031 exchange to get into multi-family investment properties. The issue I'm having is that currently my name only is on the title of the SAT investment home, and I'd like the 1031 to include my name and my wife's name. As far as I understand, the rules of the 1031 mean that you have to transfer the names on the title exactly (IE you can't add a person to the 1031'd properties). Is this correct? And if so, how do I go about added her name to the title in a way that is in-line with lender and 1031 policies?

Not asking for exact legal advice, just hoping to get a place to start the process. I've found something called warranty deeds in Texas, and I'm not sure if that's the correct vehicle for what I'm trying to achieve. If there are real estate lawyers out there who could help with this, I'd love to talk.

Thank you! My first post on the forum after lurking for a while, excited to be jumping into the conversation.

Jon

Dave Foster · Answer

@Jon Simmons, The actual 1031 statute requires that the taxpayer for the old property be the same as the taxpayer for the new property. This is not fundamentally an issue of deed as many people think. Deeding is a state convention that is not even reported to the IRS. The real issue is which tax return reports the activity of the property. The way we communicate with the IRS is through tax filings not through deeds. The deed language would only be used in an audit. You don't want it to get that far. If you and your spouse file a joint tax return then you are both the taxpayer for the property regardless of the fact that you are the only one on the deed. The activity of your property is reported on your personal joint tax return. So it is fine for you to sell and you and your wife to purchase. Or you to sell and to purchase by yourself. Or even you to sell and purchase in her name. In all of those situations, the new property will still be reported on your personal joint tax return. And any of those combinations would be fine for 1031. As @Jeff Copeland noted, Texas as a community property state already has entangled the property between the two of you anyway. So you can do a quiet title right before the sale. But it's an unnecessary expense as a sale by you and a purchase by you and your wife will satisfy 1031 law just fine

Whitney Nash · Answer

Hello @Jon Simmons, I would agree with @Jeff Copeland. In these situations, I recommend that my exchange clients do a warranty deed/quit claim deed to add their spouse to the relinquished property so that they can sell together and buy together. A spousal transfer like that shouldn’t be an issue…IMHO. Taking this step before you list the SAT property is probably your best, and easiest, bet to accomplish your goal.

Jeff Copeland · Answer

Any real estate attorney or title company can prepare and record a deed for you. You can discuss with your attorney whether a warranty deed or a quit claim deed is appropriate. But in most cases, there's no reason not to use a warranty deed. Do not do this yourself (that's a good way to create a cloud on title that causes problems later on, and it's not that expensive to do it right). You are correct that the replacement property in a 1031 exchange mush be titled the same (same taxpayer) as the relinquished property. However, that doesn't mean you can't complete the exchange now with the title as is, and then add her to the deed of the replacement property later on (probably best to wait at least one tax year after the exchange). This is something you can discuss with your qualified intermediary. Note also that Texas is a community property state, so depending on when you acquired the property and other details, your spouse may already have an equitable interest in the property, regardless of the deed. Again, something to discuss with your attorney.

Jon Simmons · Answer

First, thank you @Dave Foster, @Whitney Nash and @Jeff Copeland for your replies. I'm grateful for your experience and knowledge on this subject.I wasn't thinking about the deed post-sale - that's a great suggestion if we need it. My wife and I file our taxes jointly - the insights about the taxpayer vs. deeded owner (not sure if that's the correct term) sounds like the 1031 will potentially be less complex than I had initially imagined. EG, I will hopefully be able to include my wife in the 1031 with little adjustment - TBD, but I'm hopeful.I am starting conversations with qualified intermediaries, and I feel more prepared to ask questions with the above insights in mind.Thank you allJon

Mark H. Porter · Answer

@Dave Foster wicked smot, Dave, wicked smot!It’s info like this that keeps me going back to you!

Ryan Kelly · Answer

@Jon Simmons you have a lot of expert advice on this thread, so don't overthink it. You may not need to do anything as you file your taxes jointly and would be the same on the back end. You can also add her name to the deed of the new property after closing. With all legal and tax issues, I highly recommend consulting the professionals for the best advice. Good luck with the 1031!

Jeff Copeland · Answer

You've got one of the best right here in this thread! Highly recommend @Dave Foster.

Ronald Rohde · Answer

Definitely confirm with your QI, but if you still want to do the deed, we can help for a flat fee.

Matt Moreland · Answer

@Jon Simmons Not legal advice, but my wife and I had to do the same thing and we just went to the title company I closed the house at and they were able to take care of everything for us (here in Texas). Been a few years so I don't remember how long it took, but it was relatively hassle-free and inexpensive. Best of luck on the 1031!!-Matt