Q: 1031 exchange question
Question: After I left California in 2020 I gave my house to my mom. We have a very basic rental agreement that says her rent is $1/month. It never even crossed my mind to file it because there’s no income.
I would like to put the house on the market now and if possible do a 1031 exchange for a different property.
Does it qualify as an investment property since it was technically rented out for over 2 years?
A: The rules or criteria for 1031 exchanges are specific. Speak with a local real estate attorney. [I litigate cases. Anything posted here must not be construed as legal advice, nor as grounds for forming an attorney-client relationship. You should seek an attorney for formal legal advice and representation.]
A: You don't need to file the lease agreement. As long as your taxes reflect at least a tax year's worth of income from the property, you should qualify. Consult with a tax professional for confirmation. I would also recommend hiring a Realtor that is also an attorney to handle the 1031 exchange. A Realtor alone will not be able to help with legal issues.
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A: A 1031 exchange is pretty technical. You may have disqualified this as investment property by not charging the reasonable local rental value to Mom. I understand why you did it but the IRS may not like it. I agree that you would be best to consult with a Realtor that is also an Attorney giving 1031 exchange advice. You need to speak with an attorney practicing in this area of law to secure your rights, don't delay. Thank you for using Justia, Ask a Lawyer.
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