1031 question for the pros

[Ricardo P.]

A long term buddy of mine just informed me he had purchased a 5plex apartment in California about 7years ago in which he would like to sell now. The property gained about 350k in value(Equity). Meaning if he sells he will need to pay Uncle Sam a good chunk of change. He’s leaning more into a 1031 exchange. Now here’s the catch. His EX Partner(gf) was his co signer. She wants nothing from this deal since all the money put forward was his to begin with. Can he purchase a home without having her on the tittle/loan? He occupies one of the units and has been living there since the property was purchased. They are no longer together btw

[Dave Foster]

@Ricardo P., There may be some possibilities.  A lot depends on the "nature" of that partnership.  I get it that they were in a personal relationship I think.  But the deed and the tax returns are what are going to provide the answer to you.  

-if he was the only one on title then the activity of the property would have been reported only on his tax return.  That makes him the tax payer for the property. In that event he could do the 1031 exchange completely on his own.  She was only a cosignor on the loan.

If she was actually on the deed but they were considered to be common law spouses then it may have been possible for them to file a joint tax return.  It is that tax return that is the tax payer.  So if they have officially ended their common law marriage and he is still reporting the property on the same tax return then depending on what the dissolution decree stipulated he may be able to 1031 the entire thing.

If they're on the deed as tenants in common then he can do a 1031 on his portion and she could just take cash for her portion.  But I sense that he is wanting 100% of the proceeds.  

So there's ways and possibilities.  But would have to flesh out a few more details.  

One other thing though  that would be regardless is that he should be entitled to the first $250K of gain tax free from the allocation of the portion he's actually lived in if he's used that as his primary residence for 2 out of the 5 years prior to selling it.