Remainderman inheritance transferred into 1031?

[Brighten Miller]

When my grandmother died in 2002 she left her townhouse ($500k) as a life estate to my aunt for as long as she wants to live in it.  Should she sell it, it is currently on the market, I will receive 1/3, my father 1/3, and my aunt 1/3.

My internet research suggests that the basis of the property reset in 2002.   Additionally, only my aunt's third appears to benefit from the 250k capital gains exemption.

The house has appreciated approximately 300k in the last 16 years.  So, assuming I understand correctly, my father and I will each owe capital gains taxes (~20%) of ~$20k.

Instead, it seems like I might be eligible of using the 1031 exchange to roll over my 1/3 (~$165k) into the purchase of another property.   

Does this sound right to everyone?

[Michael Lynch]

@Brighten Miller Unfortunately, that does not seem right to me. I do not see how you were using the house as a business (rental) asset, and that is a requirement for §1031. There may be an argument that this is investment property for you, but that seems like a long-shot and would warrant research.

If you are able to substantiate that this property is an investment property for you, there is another issue. There are revenue rulings about whether or not a remainderman interest is like-kind to other interest types. Again, would warrant research.

As an aside, since there are life estate and remainderman interests, are you sure each of you have one-third of the basis? And, are entitled to one-third of the proceeds? Usually time discounted calculations need to be made.