Can I use a friends 1031 exchange as a down payment?
A friend who recently sold some land has offered to help with a down payment. We will be consulting an attorney on this but before we do I'd like to know if anyone has ever done or heard of this. My friend who is also my realtor is doing a 1031 exchange on her own recent sale and offered to use their exchange to help me fund a down payment on a multifamily building (2-4 units). Can we both be on title? Is this even allowed? If so how should I go about e eventually buying her out?
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#2 1031 Exchanges Contributor
- 1031 Exchange Qualified Intermediary
- San Diego, CA
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#2 1031 Exchanges Contributor
- 1031 Exchange Qualified Intermediary
- San Diego, CA
Hi @Carlos Vega,
Yes, this can be done. Your friend would 1031 Exchange into a tenant-in-common ownership position (percentage ownership) in the new property and you would own the balance of the property as a tenant-in-common with your friend as co-investors. It is done all the time.
Your proposed structure will not work. Setting up an LLC with two or more investors coming together in the same LLC would be treated as if the party doing the 1031 Exchange is actually buying a membership interest (partnership interest) in the LLC, which would be treated as a partnership for tax purposes. It would not qualify for 1031 Exchange treatment because the "taxpayer" doing the 1031 Exchange has changed. The purchase of a partnership interest is specifically excluded from 1031 Exchange treatment.
- Bill Exeter
