1031 Question Regarding Taxes

[Tom Beck]

Can someone answer this Hypothetical question for me regarding 1031 and Taxes.

Scenario

Lets say my Father bought a property for 1,000,000 and Sold it for 2,000,000

1031 Exchanged the sale

Bought two properties for 1,000,000 dollars each.

Held the properties for one year.

Sold me one property for 1 Dollar.

Sold the other property for 1,000,000.

Questions

Is this legal?

What would he owe in taxes?

What would I owe in taxes?

What laws could stop this from occurring?

[Jeff Bridges]

The thing you have to understand with 1031 is that capital gains are deferred and basis etc. is transferred to the subsequent property. You can keep 1031ing into new properties and deferring taxes, but when he sells it via regular sale to you, then he must pay the outstanding taxes due on those prior gains. So the IRS WILL get the capital gains tax due (unless he holds it until he dies or he continues to 1031 each property and replace it with yet another property). So your proposal doesn't help your dad avoid paying taxes upon sale to you. Yes he is allowed to sell his properties for whatever value he wants to you. 2nd issue is buying 2 houses in a short period using 1031 is very hard. I tried it. I recommend you identify and have those 2 houses under contract BEFORE you sell the original house since you have to identify them in 45 days. Your best bet for tax favorability is to have your father work with an attorney to put together a living trust or irrevokable trust which gives you the property at a stepped up basis when he passes and would result in your paying less in taxes when you dispose of inherited real estate.

see below:

https://www.erg1031.com/combin...