IRS rules - Pairing a 1031x with BRR and a mortgage partner?

[William Sumnicht]

Hi all,

I have this combo-strategy dreamt up, and I'm curious if anyone (especially tax or 1031 experts) has insights or opinions as to whether or not the IRS would drop kick this right out as taxable boot in a 1031.

*Disclaimer* I solemnly swear not to rely on posts made on BP for legal advice. Moving on...

There are a few strategies at play here:

• Using a standard, forward 1031 exchange.
• Buying properties that need work (BRRR with or without the refi, utilized to achieve a higher return).
• Partnering with someone who can get a loan when you can't (to bring deals into grasp that were previously out of grasp).

The question is, can we combine the 3? Say I sell a property all cash within a normal (non-improvement) 1031x. Here's the thought process: 

• I find the replacement property deal
• Partner puts the property under contract
• Identify 1/2 of that property as the replacement property (via tenants in common)
• Double close. I pay partner my entire cash basis of the relinquished property for 1/2 ownership in this replacement property, with an agreement in the contract that I run the rehab, and that the partner is restricted to using the money for closing costs, downpayment on mortgage, writing rehab checks (I would receive no payment), and just to make it interesting, funding cap ex and rehab accounts.

It sounds a little too good to be true, but it'd sure be cool if it isn't.