1031: Rent to Child, then give in Inheritance to that child?

[Uzair Syed]

Hi,

I've read prior posts about permissibility of renting a 1031 exchange property to family members (as long as it is fair market rent and well-documented).

Is it permissible for the parents to leave the property in inheritance to the child that was renting the property from them?

Ex: Parents do a 1031 exchange of a multifamily home to a SFR (or commercial property), which they rent to a child at FMV. Then that property is designated as inheritance for that child who is renting it.

Is that allowed?

Thank you

[Dave Foster]

@Uzair Syed, Since 1031 is a federal statute it's practiced the same in every state.  And many exchanges start in one state and end in another.  So most QI's are national in scope.

I don't know the Ohio "bequeath on death" statute. My guess would be that it follows federal estate tax code.  But you never know.   In a normal situation with or without probate your heirs can get the property at a step up in basis.  So rather than nullify the 1031 it fulfills it completely.  You deferred the tax and depreciation recapture for years.  And then gave it to your heirs tax free.  One of the mantras of the industry - defer defer defer - die!