Understanding the Same Taxpayer Rule

Posted by 1031 CORP. | Fri, Jul 21, 2023

To meet the same taxpayer requirement of Section 1031, and for an exchange to qualify, title to the replacement property must be taken the same way it was held on the relinquished property. This rule applies to any taxpayer, from an individual to an entity such as a partnership, LLC, trust, or corporation. Since an exchange is considered a continuation of the original investment in the relinquished property, title must reflect that continuation on the replacement property.

As with many rules, however, there is one exception: the use of a disregarded entity for tax purposes. In a disregarded entity, such as a single-member limited liability company (LLC), the business entity is not separate from its single-member owner and the underlying taxpayer remains the same. In this case, the entity does not file a separate tax return. Instead, any income, expenses, and/or loss is reported on the single-member owner’s tax return.

Other examples of disregarded entities include the following:

  • An Illinois Land Trust
  • A Revocable Living Trust and
  • A Delaware Statutory Trust.

Our Exchange Team is well-versed in the requirements of Section 1031 and the exchange process. We welcome your questions! 

Topics: Same Taxpayer Requirement, Live

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