1031 Exchange on a rental property with Ex.

[Jen Hoang]

I currently own a rental property in Houston, TX with my ex-husband. The property is held in our trust but I am the only one on the loan.  The trust will no longer be valid as I am remarrying.  We would like to sell it. My question is:

1. Can we do an 1031 for each of us? Meaning can we take our half of the property value and  go buy another property individually?

2. What other ways can we split the property without paying taxes?

I llook forward to hearing all the possible solutions.

[Account Closed]

Actually, under Texas law, a Revocable Living Trust cannot hold title to real estate because it is not a legal entity recognized under Texas law.

If you deeded the property to the revocable trust, the deed is not void (it just puts a cloud on the title), but it is voidable.

Your Divorce Decree probably acknowledged that the property was never really taken out of your name, and that you still owned it as community property.

Since you are divorced, you no longer own it as community property.  You each own a fifty percent undivided interest.

The correct way to transfer property to a Revocable Living Trust is to deed it to "John Smith, Trustee of the John and Mary Smith Revocable Living Trust."

You must now undo everything that you have done in order to legally reinstate ownership of the property and put it into condition for a title insurance company to insure title.

1.)  Draft a deed from "John and Mary Smith, Individually and as sole beneficiaries of the John and Mary Smith Revocable Living Trust" as Grantors, to "John Smith, (address, including county)" and "Mary Smith, (address, including county)", as Grantees.

2.)  Sign the deed in front of a Notary and have your husband do the same.

3.)  File the deed in the Real Property Records of Harris County, Texas.

You can now either buy each other out, or you can both agree to sell to another buyer.

If you sell to another buyer, either or both of you can use your portion of the Net Sales Proceeds to purchase another investment property and defer taxes on the capital gains and depreciation recapture.

I hope this helps.

Michael Lantrip