Related parties · not tax or legal advice
1031 related-party rules
Exchanging with a related person can still be a §1031 — until someone sells within two years. Congress added §1031(f) so related parties could not use an exchange to cash out low-basis property while parking high-basis property inside the family or the entity group. This page restates (f) and the related-person cross-references. It is not a diagram of your LLC chart.
The two-year lookback on a later sale
IRC §1031(f)(1): if (A) the taxpayer exchanges property with a related person, (B) there is nonrecognition under §1031 on that exchange (determined without regard to (f)), and (C) before the date two years after the last transfer that was part of the exchange, either the related person disposes of the property or the taxpayer disposes of the like-kind property received from the related person — then there is no nonrecognition under (a) for the original exchange. The gain or loss is recognized as of the date of the later disposition.
Subsection (g) suspends the two-year period for any time during which a party’s risk of loss is substantially diminished by certain puts, calls, short sales, or other positions. Read (g) if a hedge is on the file.
Statutory exceptions
IRC §1031(f)(2) says (f)(1) does not apply to a disposition after the earlier of the death of the taxpayer or the related person; a disposition in a compulsory or involuntary conversion (if the exchange occurred before the threat or imminence of the conversion); or a disposition with respect to which the taxpayer establishes to the satisfaction of the Secretary that neither the exchange nor the disposition had as one of its principal purposes the avoidance of federal income tax.
“To the satisfaction of the Secretary” is not a checkbox on a QI intake form. Do not treat a QI’s willingness to paper the file as the (f)(2) exception.
Who counts as related
IRC §1031(f)(3): a related person is a person bearing a relationship to the taxpayer described in §267(b) or §707(b)(1). Those are the Code’s related-party lists — family, controlled entities, partnership-partner relationships at stated thresholds. This page does not reprint those lists. Open the current §267(b) and §707(b)(1) text for the relationship on your file.
Structured to avoid (f)
IRC §1031(f)(4): this subsection shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection. The double negative is in the statute: (f)’s relief path is cut off if the series is structured to avoid (f)’s purposes. A qualified intermediary inserted between related parties is the usual fact pattern people ask about. The QI safe harbor in Treas. Reg. §1.1031(k)-1(g)(4) is about constructive receipt. It is not a holding that (f)(4) cannot apply.
Partnership drop-and-swap sequences raise both (f) and the “held for” / partnership-interest issues ondrop and swap.
FAQ
What is the 1031 related-party rule?
IRC §1031(f): if a taxpayer exchanges with a related person and gets nonrecognition, and within two years either the related person disposes of the property or the taxpayer disposes of the like-kind property received, the original nonrecognition is generally undone — the gain or loss is recognized as of the date of that later disposition. There are statutory exceptions in §1031(f)(2).
Who is a related person for 1031(f)?
IRC §1031(f)(3) defines related person by reference to §267(b) or §707(b)(1). Those sections cover specified family relationships and specified ownership percentages in corporations, partnerships, and other entities. Do not invent a percentage from a blog. Read 267(b) / 707(b) for the relationship in front of you.
Does using a QI avoid the related-party rule?
§1031(f)(4) says subsection (f) does not apply to any exchange that is part of a transaction — or series of transactions — structured to avoid the purposes of (f). A QI in the middle of a related-party sequence is a facts question, not a safe-harbor sticker. This page will not bless a structure.
Related
Sources
- 26 U.S.C. §1031(f), (g) — law.cornell.edu/uscode/text/26/1031. Related-person exchanges; two-year disposition; exceptions; anti-avoidance; risk-diminution. Accessed 2026-09-11.
- 26 U.S.C. §267(b) and §707(b)(1) — relationships cross-referenced by §1031(f)(3). Cornell LII. Accessed 2026-09-11.
- Treas. Reg. §1.1031(k)-1(g)(4) — QI safe harbor is constructive receipt, not a §1031(f) holding. 26 C.F.R. §1.1031(k)-1. Accessed 2026-09-11.
This page is not tax, legal, or investment advice.