Related-party rules restrict 1031 exchanges between family members, controlled entities, and other related parties. Related-party exchanges face 2-year hold requirements and specific scrutiny.
IRC §1031(f) specifies related parties (family, controlled entities, partnerships with >50% common ownership). Exchanges between related parties are permitted but both parties must hold their exchange property for 2 years or the exchange unwinds into taxable sales. Also specific rules on related-party involvement as intermediaries.
LA multifamily 1031 exchanges occasionally involve related-party structures — family trusts exchanging with family LLCs, related entities, etc. Consult counsel carefully; structural errors can void the exchange or trigger back-taxed treatment.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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