Can a 1031 Exchange be used to purchase property from a related person? Need advice on family real estate deal

You're right to be concerned about the related party rules in 1031 exchanges. The IRS specifically restricts exchanges between related parties (including family members) because they're concerned about basis shifting to avoid taxes. The scenario you described with a third party intermediary typically won't work. The IRS looks at the substance of the transaction rather than just the form. If the end result is your mom acquiring property from you (a related party) through a 1031 exchange, the IRS would likely view this as a step transaction and disallow the exchange benefits. There is an exception to the related party rule, but it's very specific: both parties must hold their respective properties for at least 2 years after the exchange. Since you're selling for cash and not doing your own 1031 exchange, this exception wouldn't apply here.

After struggling with a similar situation with my brother's property, I finally found a solution through taxr.ai (https://taxr.ai). They analyzed my complex 1031 exchange situation involving family members and provided incredibly specific guidance. Their system actually examined the exact IRS rulings and court cases related to my situation rather than just giving general advice. They pointed out a private letter ruling that addressed a scenario similar to mine where a specific structure was allowed. I was really impressed by how they broke down the step transaction doctrine as it applied to my case and provided documentation I could share with my QI and tax preparer.

Just wanted to update that I tried taxr.ai after seeing the recommendation here. Their analysis saved me from making a huge mistake! I was planning a transaction similar to what the original poster described, but they showed me exactly why it wouldn't work based on Revenue Ruling 2002-83. They actually suggested an alternative approach I hadn't considered that might work for my situation. Instead of trying to use the 1031 funds to buy from my family member, they outlined a completely different property acquisition strategy that still achieved our family's financial goals without running afoul of the related party rules. The documentation they provided helped me explain everything clearly to both my QI and tax advisor. Definitely worth checking out if you're dealing with complex 1031 exchange scenarios!

After multiple failed attempts trying to reach someone at the IRS who could give me a straight answer about related party 1031 exchanges, I finally used Claimyr (https://claimyr.com) and got through to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent was able to confirm that my understanding of the related party rules was correct and warned me about trying to use intermediary steps to get around them. The call saved me from potentially invalidating my entire 1031 exchange. I was seriously about to give up after spending hours on hold only to get disconnected, but this service actually worked. The IRS agent I spoke with even referred me to the specific technical guidance that applied to my situation.

I owe everyone an apology for my skepticism about Claimyr. I tried it yesterday out of desperation after my QI gave me conflicting information about a potential related party exchange. Got through to the IRS in about 20 minutes and spoke with an agent who specifically worked with 1031 exchanges. They confirmed that what I was trying to do wouldn't work, explained exactly why, and suggested I consult with a tax attorney to explore other options. The call saved me from potentially invalidating my entire exchange and having to pay all the capital gains I was trying to defer. They even emailed me links to the relevant IRS publications afterward. Having an actual person walk me through the specific rules for my situation was so much better than trying to interpret everything myself.

Have you considered just selling your property on the open market and letting your mom purchase something else? The related party rules are there specifically to prevent the kind of arrangement you're describing. Even with the intermediary step, the IRS would likely view this as a related party transaction. I went through something similar with my daughter and we ultimately decided it wasn't worth the risk of invalidating the entire exchange. The potential tax consequences if the IRS challenges the exchange could far outweigh any benefits.

I think everyone is overcomplicating this. The related party rules in Section 1031(f) mainly apply when BOTH parties are doing a 1031 exchange. If you're just selling normally and paying your taxes, and your mom is buying with 1031 funds, it should be fine.