Tax and other implications of land trade

[Dom Nico]

If I trade property I own in exchange for a property owned by a non-profit organization, what do I need to consider regarding taxes or anything else that could impact the transfer? How should we structure the transfer, deeds, etc.? No money will be exchanged, just my 2 lots for their 1 lot.

Plans for the property I'll be receiving are still up in the air. Might sell, might keep and lease or develop. Not knowing the final plan, I'm not sure if 1031 is a good option. I'm still learning. 

Someone told me to treat the transfer as 1 for 1, and then treat the 2nd lot separately as a gift donation. 

What's the best option?

[Benjamin Weinhart]

Hi Dom, it's inadvisable to treat the 2nd property as a gift since that's not the intent of what's going on in this case. Best to just combine them for the purposes of this transaction. A 1031 exchange can be a good option because although there is no cash involved in the deal, you would still recognize a gain based on the fair market value of the properties being received over the basis of the property you're giving up (if it's a gain).

[Zachary Smith]

Similarly, I am trading my dad a condo from a condo complex that my wife and I built for his half of the land that we own together and have owned for 12 years.  His half is owned in a trust and he will be taking title of the condo in the same trust.  My wife and I will be paying taxes on the gain from the condo but will he have to pay any gain and do we have to hire a 1031 company since nothing will be held in escrow?  Both deeds will be filed at the same time.  We are getting conflicting opinions from different CPAs.  One says we need to "perform a 1031" the other said that it is essentially a pure exchange and no action is needed for my dad since it is an exchange and no money is changing hands.  Thanks for any help!

[Dave Foster]

@Zachary Smith, It's possible to simply "deed swap" if the two properties are of exactly equal value.  the problem is that this is very hard to do.  and even harder to prove.  There was a lot of little tracts of west Texas desert land that used to be added to deed swaps to make the valuations work out back in the day.

The reason for a 1031 in this situation is that it provides crystal clear direction and documentation.  Your accountant files the form 8824 at the end of the year and everything is documented and your basis carried forward smoothly.

@Dom Nico, exactly  What @Benjamin Weinhart said.  If for no other reason it makes documentation so much easier.

[David Orr]

A 1031 exchange is only an option if the properties you're selling and the property you're buying are for business use (generally, that means they have to be rental properties, used for your business, or held strictly for appreciation and not used for personal use).  The IRS safe harbor is at least 24 months of business use for the property you're giving up and the property you're acquiring.  

I wanted to mention that since it's unclear whether some of the properties in both of those situations are for personal or business use. 

David Orr
Tax Modern