We are doing a 1031 exchange on multiple properties presently owned by trusts with three siblings as owners.  The purpose is to have each sibling own the individual properties outright, instead of together.  What happens to the basis in this situation. Is it divided equally among the three groups or does it stay with the individual property? One of the groups has substantially more basis than the others.

Hi Elizabeth,

The basis essentially stays or follows the taxpayer and not the property.  It sounds like you have multiple properties owned by a number of trusts and three siblings are the three beneficiaries of these trusts.  The desired end result is that each sibling would own 100% of specific properties and there would not be any co-ownership involved with any of the properties once this transaction has been completed.  You need to analyze each separate property and each separate taxpayer individually as a separate 1031 exchange in order to determine the amount of adjusted basis, deferred depreciation recapture and deferred capital gains would be deferred into the new property. 

Would it be improper for the accountants to tell us that the total basis will just be split three ways equally then? Ownership is presently1/3 each.

Not necessarily.  It is possible, especially if you each have a 1/3 interest and everyone inherited the properties at the same time, etc, it can be as easy as splitting the cost basis evenly among the beneficiaries of the trust. 

The debt on the properties is presently shared equally.  Upon the division, one party will assume substantially more of the debt than the others.  Should some sort of equaliztion take place in basis to offset this disparity?

Hi Elizabeth,

Probably.  The disproportionate allocation of debt can cause complications.  This is not our area of expertise, so it is now a job for your tax advisor.  We can refer you to one if you like.