Q:

Subject: Exchange Question

An individual sells a rental producing property (Schedule E) and has identified a rental income property but it is taxable as an S Corp of which he is currently a 22.5% shareholder.  The majority shareholder of 55% will sell his interest within the 180 day limit.

 

Will this qualify as a 1031 exchange?

 

Thank you

A:

From the way you described the situation, there would not be a valid 1031 exchange.  It sounds as if you will be disposing of a rental property that you own in your own name.  The replacement that you are proposing sounds like a purchase of stock in the S corp that owns a rental property. 

A valid 1031 exchange requires like kind properties, which is real estate for real estate.  Corporate stock is considered to be personal property, regardless of what assets it owns.

If I misunderstood the details here, please give me a better explanation of the actual ownership of the properties involved. 

Kerry Kerstetter

My interpretation of this transaction must have been right, because I received the following reply.

Thanks for getting back to me.