1031 exchange when Title and Taxes structure differ

[David Shaw]

Hi BP team, Happy New Year!

My brother and I own a 4-unit rental property in Los Angeles, CA, we've owned it for almost 10 years. The property Title is owned 50% by each of us individually, as tenants in common. HOWEVER our taxes for the rental property are filed under a Partnership, each of us owning 50% of the Partnership, then we each get a k1 and file our own taxes etc.. The Mortgage is also under both of our names as individuals, not under the Partnership.

We were interested in selling the property and performing a 1031 exchange, however there is some concern about any issues we would have in the eyes of the IRS with 1031 rules given the way the Title is vs how the Taxes are filed.

The tax filing was setup this way at the advisement of our CPA, however he apparently meant that the property Title should also be changed to be put under the Partnership, there was obviously a miscommunication here.

Would we still be able to perform a 1031, if so can the replacement property Title be structured the same way as we have it now (under each of us as 50% individuals, tenants in common), new mortgage under both our names, and just keep the Partnership for tax filing as it always has been?

1) We would like to avoid triggering any audits due to the Title vs Tax Filing differences.

2) We would like to make sure the 1031 is valid in case of an audit, given the Title vs Tax Filing differences.

Thank you in advance