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My uncle and I are looking at selling a home we own in a trust. He would like to withdraw his portion of the net proceeds via a K1 and I would like to do a 1031 exchange with my portion. Is this possible?

Say the home is sold for 400k. Can he distribute his 200k and I put my 200k into a 1031 exchange for purchase of another home?

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If the trust is not like a partnership, then the boot can be cashed out and taxed. Your partial 1031 exchange will be untaxed.

If a trust is like a partnership, this article details several solutions. This solution seems to be the simplest:

Having the partnership complete a 1031 Exchange, then refinancing the acquired like-kind replacement property(ies) after a short period of time and distributing the cash to partners who do not want to participate in the 1031 Exchange transaction (buying back the interests of those who want to cash out).

Other solutions mentioned in the article would require the trust to wait two years after the 1031 exchange before cashing your uncle out.

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  • The article refers to a partnership, in my case my trust is the equivalent to a partnership? Do any of those solutions allow my uncle to receive his taxable boot cash immediately after the sale portion of the 1031 exchange wo him having to wait two years?
    – simgineer
    Commented Jul 28, 2021 at 0:42
  • Thanks, changed my answer to cover partial 1031 if no partnership.
    – Orange Coast- reinstate Monica
    Commented Jul 28, 2021 at 18:35

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