1031 Exchange with Parents

[Calvin Chan]

Hey BP community, 

I have a question regarding a 1031 exchange with my parents. They want to sell an investment property and use the 1031 exchange proceeds to help with putting a down payment on a house for my family. We will be living in the house and will be paying rent to accommodate the 1031 exchange.  I read that I can be on the title and the home loan with my parents, but am getting conflicting answers from my lender. So my questions are as follows.

- Can I be on the title of the home with my parents and pay them rent? 

- Can I be on the home loan for the house with my parents?

- If I can be on the title, but not the loan how long does the property need to be a rental property before we can refinance and I can be on the home loan?

[Bill Exeter]

Hi @Calvin Chan, 

Yes, your parents can sell investment property, complete a 1031 Exchange by acquiring property that your family will live in, and charge your fair market rent. It is important that you pay your parents fair market rent for the portion of the property that your parents will own. 

Yes, you can be on title, too, as long as the percentage of the purchase price that your parents buy is equal to or greater than the sale price of their relinquished property. They need to be able to trade equal or up in value to satisfy their 1031 Exchange reinvestment requirement.  You can be on title for the balance of the purchase, generally as tenants-in-common. 

Yes, you can be on the loan, too. 

For example, if your parents bought 75% of the property and you bought the remaining 25% of the property you would need to put 25% of the down payment, be responsible for 25% of the debt, etc.