Fee simple in a 1031 exchange refers to ownership of real property that includes both the land and the buildings on it. In a 1031 exchange, the fee simple ownership of the property being sold (the “relinquished property”) must be exchanged for the fee simple ownership of another property (the “replacement property”).
- In a 1031 exchange, the property being sold must be fee simple ownership, including both the land and the buildings.
- The replacement property must also be fee simple ownership.
A taxpayer owns a rental property with a building and the land it is built on. They want to sell it and use a 1031 exchange to defer capital gains tax. They can only do so if they exchange the fee simple ownership of their original property for the fee simple ownership of another property.
- Ensure that both the relinquished property and the replacement property are fee simple ownership before proceeding with a 1031 exchange.
- Consider the type of ownership when selecting replacement properties for a 1031 exchange.
- Seek the advice of a tax professional and real estate attorney to ensure compliance with 1031 exchange regulations.
- Carefully consider the terms and conditions of the ownership of both the relinquished and replacement properties before proceeding with a 1031 exchange.