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Vesting and 1031 Exchanges: “Same Taxpayer” Rule

Exchange Update

In order to qualify for tax deferral treatment under Internal Revenue Code § 1031, the taxpayer that sells relinquished property in an exchange must also purchase the replacement property. For example, if Alex Smith sells relinquished property as an individual, Alex Smith must also acquire the replacement property. While a simple concept in theory, investors often overlook this important detail. A variety of circumstances can arise under which vesting of the replacement property must differ from the relinquished property’s original vesting. In some cases, there are certain exceptions to the general rule that can be utilized to meet the “Same Taxpayer” requirement, as outlined here:

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