Colleagues,

 

              Looking for some confirmation/clarification of the intersection of real property, MAPTs,  and 1031 Exchanges.

 

Clients wishes to include low value, out-of-state rental properties in an MAPT.  There are no mortgages; however, one owned by the husband, individually, was subject to a prior 1031 Exchange

 

              It is my understanding is that a property subject to a 1031 exchange must be continuously owned by the same purchase in order to retain the preferential tax treatment.  A revocable trust works as it is a pass-through entity.  Irrevocable trusts, on the other hand, might cause problems.  We draft MAPTs to be grantor trusts for income tax purposes and for estate inclusion, however, I would think such a transfer would be permissible.

 

Assuming I am correct, my initial thought was that the husband would have to transfer the 1031 property to his individual trust, so as to retain the tax benefit of the 1031 exchange.  Upon reflection; however, since they filed joint federal and state income tax returns, I began to wonder if this is necessary?  My guess is still yes, but I would appreciate anyone's input.

 

Thank you,

Sean