I purchased some townhouses from my parents as part of a 1031 exchange they were doing and they purchased another rental property to complete the exchange. It has now been 5 years and I hate rental. My parents are willing to buy them back as long as they don't loose out on the original benefits of the 1031 exchange. They still own the new rental and have no plans on selling it soon.

Question: can someone buy back property they have 1031 exchanged without effecting the validity of the original exchange ?

Yes, your parents can acquire the rental property back from you and not have any worries about their 1031 exchange.  There has been more than enough time between the sale to you and the eventual buy back.

 A similar situation:

We bought two condos with my in-laws four years ago. At that time, they sold an investment property and used a 1031 exchange to purchase their share (60%) of the two condos.  Now, I would like to get out of the situation. 

We would like to sell one condo to a third party and then my in-laws want to take the money made from that sale and use it to buy us out of our share of the other condo.  My husband and I plan on taking that money and apply it to the purchase of our first home.  (We know that we will have to pay capital gains on our share, which we are OK with.)  My question is:  in this scenario, would my in-laws have to pay any capital gains tax or are they covered under the 1031?

 Thanks.

happyrenter:

We would like to sell one condo to a third party and then my in-laws want to take the money made from that sale and use it to buy us out of our share of the other condo. 

I'm assuming here that your in-laws are planning to structure a 1031 exchange on the sale of their 60% interest in the first condo and completing their 1031 exchange by acquiring your 40% interest in the second condo.  Is that correct?  

My husband and I plan on taking that money and apply it to the purchase of our first home.  (We know that we will have to pay capital gains on our share, which we are OK with.) 

You will probably also have depreciation recapture taxes to be concerned about, so don't forget to factor that into your computation.   

My question is:  in this scenario, would my in-laws have to pay any capital gains tax or are they covered under the 1031?

It is possible, but there are a couple of follow-up items that need to be reviewed to determine if they would qualify for 1031 exchange treatment.  First, it is a related party transaction since they are buying property from their son, so there is a two (2) year holding period.  Second, selling property to a related party does qualify provided there is a two (2) year holding period, but buying property from a related party is more problematic and usually will not qualify.  The primary issue is addressed in IRS Revenue Ruling 2002-83.  Generally, transactions will not qualify based on this Rev. Ruling 2002-83.  However, you might qualify based upon your circumstances.  We need to walk through the numbers involved to get a better idea. 

Do you have time to talk about the specifics rather than post back and forth on The Exeter Discussion Board?

 Thanks.