Renting to Family member - keeping as rental in 1031

[Susan O.]

Hi I wanted to 1031 exchange a SFR that's currently rental and upleg into an SFR and rent it out to a daughter. Would that be OK I would still accept rent and do depreciation etc but my daughter would live there and pay rent.

Then in future could I 1031 exchange that SFR again if daughter moves?

[Kyle Kadish]

If your daughter rents from you and pays rent, it is an investment property. The rent will need to be a 'fair-market' rent, i.e. is it equivalent to what a non-related party would pay, or a similar rate as other SFR's in the area are charging.

Additionally, for further proof of intent as an investment, it is never a bad idea to have a lease agreement with your tenant, whomever they may be.