Florida Land Trusts and 1031 Exchanges: Understanding the Same Taxpayer Rule for Real Estate Investors

[00:00:00] Speaker A: Most Florida real estate investors think their land trust just protects them from creditors and keeps their identity a secret. They forget it's also the thing that decides whether their next 1031 exchange works or blows up. I'm Joe Siegel. I run Aspire Legal Solutions in Orlando. My other land trust company. My land trustee is Florida's oldest and largest land trustee. So when I tell you the same taxpayer rule under section 1031 gets confusing with trust. Trust me, I've watched it confuse a lot of investors. But here's what the IRS actually cares about. Section 1031 lets you defer capital gains when you exchange one investment property for another. But the same taxpayer identification number has to be on both sides of the deal, the relinquishment as well as the replacement. So when title is in a trust, same taxpayer depends on what kind of trust it is. And there are basically four flavors. Three of them are pretty forgiving. One of them is going to wreck your exchange if you do it wrong. So let's get into those flavors. Flavor number one, that's a revocable living trust. It's totally transparent. You can hold the property in the trust and buy the replacement in your name or vice versa. No problem. Flavor two is your typical Florida land trust. Under Florida statute 689.071, the IRS in revenue ruling 92105 said a land trust beneficial interest is real property for 1031 purposes. The trustee is just an agent. The beneficiary is the taxpayer. Same taxpayer, same rules. Satisfied? Flavor 3 is the Delaware statutory trust or a DST. Now, these are syndicated 1031 replacement properties. They are eligible, but only if the trust agreement Satisfies Revenue Ruling 2004-86. The trustee can't have active management powers at all. So ask the sponsor for the legal opinion before you subscribe to a dst. Now flavor four, and this is the one that destroys exchanges. That's an irrevocable non grantor trust. Separate taxpayer, different taxpayer ID number. The trust has to do the exchange. If the trust sells and you, the grantor, try to take title to the replacement property in your name, the exchange is going to die. Full tax bill, no mercy. Here's what to do. If you're holding real estate through a land trust and you're thinking about doing a 1031 exchange in the next 12 months, get a same taxpayer audit on your structure before you sign anything with a qualified intermediary. And, and by on your structure, I mean audit the trust as well as whatever vehicle you will be using to buy the replacement property. The same taxpayer rule is very unforgiving and so is the IRS auditor who finds that it's broken. [00:03:25] Speaker B: Thanks for listening to this edition of Trust this. If you got something out of it, please press like and subscribe and give us a five star review to help us reach others who can benefit from this series. Until next time, keep aspiring to a better life.