Tax implications gifting a 1031 property

[Jeremy Lee]

Hey all,

I was curious about tax implications regarding the condo I live in (primary residence since 2007) that I co-own with my parents (1031 exchange). They had a prior property that they 1031ed into this condo (and also put in some of their own money I believe) and we agreed to 75% (them) /25% (me) co-ownership situation. I put a small downpayment in and took a private loan (for the 25% ownership) from them that I'm paying back w/ interest and somehow we structured it to count as income for them produced by this same property... I don't recall all the details around that.

A couple questions/scenarios to confirm:

1) They are wanting to pass the property on and have encouraged us to look for another place - they would like to transfer their ownership to us, which I assume means gifting. In this case, would the gift of their ownership (mixture of 1031 funds and other) be able to be counted towards both the annual and lifetime gift tax exemptions for them so that they wouldn't be taxed on any of it? 

2) Assuming the first part is OK, and since this presumably counts as our primary residence per section 121 ($500k of home gain exclusions for married couples), when we go to sell (and then buy a new home that's either the same value of the sale proceeds or more), will we have a full exclusion on the capital gains from the sale?