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What if the lender for the new property is insisting that the loan include my spouse’s name, and that my spouse must also be on the deed? Is this a problem?

The taxpayer (name that appears on the deed) for the sale of the old property must be the same taxpayer on the deed for the new property.

For example: If you sell as John C. Investor, you must buy as John C. Investor.

Sometimes, for credit and underwriting reasons, the lender will require that both husband and wife appear on the loan. To secure the loan, the lender will also require that both names appear on the deed. Depending on the particular situation, this may be no problem. Carefully review the following examples for the various scenarios.

For example: If you sell the old property for $100,000, and you are buying the new property for $200,000, you only need to acquire $100,000 of the new property (in this case 50%) to satisfy your exchange. You and your spouse could be equal owners of the new property.

Continuing our example: If the new property will cost you $150,000, you will need to acquire two-thirds ($100,000/$150,000 = 2/3) to satisfy your exchange. Your spouse can acquire the other one-third. Your lender may or may not accept the fact that your spouse is on title for less than 50%. You might try having the deed show that you and your wife are joint tenants, without specifying a percentage. This will make the lender happy, and the actual percentage that you each own can be shown on the exchange documents and settlement statement.

Final example: If the new property will only cost you $100,000, you have a problem. You must acquire 100% of the property to satisfy your exchange. In this case, there is no room for your spouse to be included on the title. Adding your spouse will definitely jeopardize your exchange. You can help build your case for the IRS by getting a letter from the lender that states their requirement to have your spouse on title. Therefore, if you get audited, you can give an solid explanation about why your spouse is on the title. Hope for an understanding auditor.

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I know I cannot sell the old property in my name, and then turn around and buy a share of a partnership. But, can I buy a share of the new property in my name, and then immediately transfer my share of the land to the partnership?

No. Section 1031 requires that you sell real estate and buy real estate. If you buy a partnership interest, that is not considered real estate. If you buy real estate, and then transfer your share of the real estate to a partnership, the IRS may connect the two transactions together. Therefore, arguing that you, in effect, bought the partnership interest which would disallow the exchange. Your best bet is to wait a year and a day before you transfer the real estate to the partnership.

 
 

Thanks again everyone for all your hard work on this transaction.

John A. Nicola
Laureate Capital
Bonita Springs, Florida

 
 

Selling your old property and buying several new properties can be a useful tool for estate planning.

For example: You can sell your large old property and buy three smaller properties – one for each of your three children to 'manage.' The children can even be involved in making the decisions about which properties to buy. After your death, each of the three children would inherit the property they are managing.

Tailoring the property to your children's situation could be beneficial to them in other ways.

For example: Your teacher child may select a "fixer upper" -- property where he or she can invest "sweat equity" during the summer. Your doctor child, on the other hand, may benefit from bare land -- property that appreciates, but avoids rental income that would be highly taxed.

 

 
 

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Miami Beach, FL