Looking to 1031 and add our son (not transfer)

[Brett D.]

I bought a lot of land a couple years ago. Then secured a construction loan for a SFH to be rented out. Construction started, but between the lockdowns and a hurricane last year, it took too long and the lender bailed. Secured a replacement construction loan a couple months ago, and construction is under way. Hopefully completed in the next couple months.

I originally planned to add my wife to the title upon completion like we did our first rental home.

Then we got to thinking.  Our son is just starting college.  Now we're looking to switch gears and sell the new house when it's completed and 1031 that into a condo, townhome or multi-family where my son would live along with paying roommates.  Additionally, I thought it would be a good idea to also add our son to that mortgage as well as my wife and me.  Not to gift it to our son; but to get him added to the process.  He'd be owner-occupying, he'd be responsible for collecting rents and maintenance, and lift his credit experience.

First, does it seem like there's any drawbacks to this in general?

Second, specifically about the 1031, would this even be possible if adding our son?  I've seen a number of other posts related to gifting to children, but can't seem to find anything about adding them and not transferring.

Thanks!

[Bill B.]

Talk to an expert like @Dave Foster but my starting points would be…

What’s the upside to adding your son?

A few downsides off the top of my head: I mean obviously if he got in a car accident or hurt someone you could lose this property if it was in his name. I assume he’s filing his own taxes so that’s at least a small problem with the 1031, you probably be better off doing it after the exchange. It can’t be for a primary home, so the rental portion would have to be worth more than your sale, and then his portion would have to be on top of that. You said it wasn’t to gift him part of the property but you have by putting him on title. This also eliminates the stepped up basis upon passing. 

I guess, just make sure there’s enough positives, if any, to outweigh the negatives.