1031 Question for when one person has poor credit?

[Douglas Armendarez]

I couldn't find an answer, so I came here =). I'm looking to 1031 a property, which I own jointly with my wife, but she has poor credit. My thinking was that I could use a Q. Claim and get her off title, and then do the 1031.

That seemed like a logical solution, but then a 1031 guy I spoke with said it may cause tax issues for her? I know this can be true with an LLC, which we are not, and I know there is a cooling period with an LLC, but I don't know if that would apply to a married couple?

I obviously want to drop her because I want to get a loan on the other side of the 1031 transaction.

Has anyone had any experience with this sort of thing? Is there a better solution?

[Dave Foster]

Thanks for the shout out @Jaysen Medhurst. The QI guy was sort or right. But I think there may be something they may be missing. It is technically not the entity that has to remain the same. It is the tax payer. Whoever the taxpayer is for the old property has to be the taxpayer for the new property. And since we communicate with the IRS through out filings (deeds and LLC and corporate registrations are state creations) it is the tax return that reports the activity of the property that is the taxpayer for the property for 1031 purposes.

If you and your wife file a joint tax return then each of you and both of you are the same taxpayer.  Whether the property is in her name or your name or both names it is reported on that joint tax return.  So rather than doing a quit claim you could sell as both and buy only in your name?  That does not change the taxpayer so would be fine for 1031 purposes.

Now the caveat to that is how the state will want to treat it given that you are in a community property state.  This is something you'll want to address with your advisors on the community property issue at the state level.