1031 Exchange for Joint Tenants

[Susan O.]

If you are holding a property as Joint tenants.  Can three owners sell their current property and 1031 exchange it as Joint Tenants into another property.

Do we need to change title to Tenants in Common or anything like that?

During the escrow is it possible to put it in a LLC... or would that trigger capital gains taxes? Or could this be done prior to selling? We still have not sold our downleg

I'm selling a California property and buying out of state.

[Dave Foster]

@Account Closed   Yes, Joint tenants can 1031 either together or individually as long as the joint tenants are separate taxpayers.  In general Joint Tenancy simply means an equal undivided interest in the property whereas Tenants in Common refers to specific many times unequal undivided interest in the property.  Either way - tenants is tenants and yes you can 1031.  

However, if the Joint tenants are married filing a joint return then technically it is only one taxpayer and not two.  In that instance both of the Joint tenants own the entirety and are seen as only one taxpayer by the IRS.  The fact that you have three parties who are joint tenants is curious and may have to do with a community property or state issue (especially since you're in CA one of the last bastions of Community property).  But for federal 1031 purposes if there's three then there's got to be at least two different tax payers.  And all the tenants who are different taxpayers can do exchanges out of that property into properties they own individually.

The IRS frowns on changes of tax payer immediately prior to a sale.  So I would strongly discourage any change of ownership/reporting entities until the exchange is over.  This includes in the middle of the exchange.  Any reputable QI would not let you do that hopefully.  And you don't need to.

The way to accomplish what you're trying to do is to sell the property as it is titled now and begin one exchange for each tenant that wants to separate.  They will take title to the replacement property in their name alone because they are selling a property that they alone own (an undivided interest in the old property).

I've reached out to you via pm if you wish to discuss further.