The Same Taxpayer Requirement in a 1031 Exchange: What Investors Need to Know

By The Exeter Group of Companies

Welcome back to Exeter EMPOWER, your reliable source for technical guidance on 1031 exchanges, self-directed IRAs, individual 401(k) plans, title holding trusts, specialty holding escrows, and custody services.

In this issue, we’re clarifying a commonly misunderstood rule in 1031 exchanges, providing updates on regulatory relief from the FDIC, and sharing an important legislative update directly from Bill Exeter.

In this edition:

• 1031 Exchanges: Same Taxpayer ≠ Same Name
• FDIC Appraisal Relief Update
• Legislative Update: Status of 1031 Exchanges in Congress

Let’s dive in.

A frequent misconception in 1031 exchanges is the belief that the relinquished and replacement properties must be held under the exact same legal name. While that’s a helpful rule of thumb, it’s not strictly correct.

What the IRS Actually Requires:

The critical standard is not about the name on the deed, it’s about the taxpayer who reports the gain or loss on their tax return. In other words:

• The entity or individual that sells the relinquished property must be the same taxpayer acquiring the replacement property.
• Legal title discrepancies can be acceptable, provided the taxpayer reporting responsibility doesn’t change.

Common Scenarios that Require Caution:

• Holding title under a single-member LLC on one side of the exchange and the individual’s name on the other.
• Switching from a trust to a corporation.
• Spousal title changes that affect filing status.

Failing to meet this requirement can disqualify the entire exchange. Always consult a qualified intermediary before structuring a transaction.

Watch our detailed breakdown of the same taxpayer requirement 👇

The FDIC, in coordination with other federal agencies, has issued a temporary exception to standard appraisal requirements for real estate transactions in Los Angeles County, following the California wildfires and straight-line winds.

Key Highlights:

• Applies to real estate transactions in designated disaster areas.
• Institutions may forgo a standard appraisal if:
  • The property is in an affected area.
    A binding commitment was made between January 8, 2025, and January 8, 2028.
  • The property value sufficiently supports the credit decision.
• Internal management reviews remain mandatory.
• Exceptions are valid for three years from the disaster declaration.

This flexibility can assist investors needing to expedite real estate transactions, including replacement property acquisitions under a 1031 exchange.

Thank you for reading Exeter EMPOWER!

Stay tuned for our next issue, where we will:

• Introduce our newest team member.
• Provide insights into the Qualified Use Requirement in 1031 exchanges.