I plan to sell property and then purchase a related property in a different state. I obtained this property prior to my marriage and I have reported it annually via Schedule E of my form 1040. I would like to add my wife to the title, but I'm concerned that I may no longer be eligible for the 1031 tax election. Can I add my wife to the title?

ANSWER

The BIDaWIZ Team's Answer:

It is very important to understand how specific state laws impact the transaction. For community property states such as California, you can add your spouse to the title as you both jointly own the property. There wouldn't be a tax event for including your spouse to the title in this state. However, if the property is held in a non-community property state such as Florida, you will be restricted in when you can add your spouse to the title. Specifically, IRC section 1031 requires that the relinquished and replacement property have the same owners and structure. If one spouse isn't already an owner of the property held in Florida, then they will have to wait two years before adding the other spouse. This wouldn't be a taxable event as referenced in IRC Section 1041.