Who counts as a related party in a 1031 exchange?

One sentence in section 1031(f)(3) sends you to two other Code sections

Section 1031(f)(3) reads in full: for purposes of that subsection, "the term 'related person' means any person bearing a relationship to the taxpayer described in section 267(b) or 707(b)(1)." There is no separate 1031 definition to look up.

That matters because the two borrowed provisions were written for other jobs, section 267 to disallow losses between related taxpayers and section 707(b) to police sales with controlled partnerships. Their lists are mechanical, and a relationship that feels close will not count unless it appears in one of them.

The Service's own plain-English version sits on Form 8824 line 7, which names a spouse, child, grandchild, parent, grandparent, brother, sister, or a related corporation, S corporation, partnership, trust, estate or tax-exempt organization.

The blood relatives who count are a short list, and everyone else is outside it

Section 267(c)(4) is exact: "The family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants." The word "only" is doing real work.

So a half-brother is related and a first cousin is not. Your mother, grandmother and great-grandmother are ancestors; your son, granddaughter and great-grandson are lineal descendants. Aunts, uncles, nieces and nephews appear nowhere.

A spouse is on the list while the marriage lasts. The statute never mentions a former spouse, which is why a post-divorce sale between ex-spouses is generally an ordinary arm's-length transaction for section 1031(f) even though other Code sections treat the pair differently.

• Related: husband or wife, brother, sister, half-brother, half-sister, parent, grandparent, child, grandchild, great-grandchild.
• Not on the family list: son-in-law, daughter-in-law, mother-in-law, brother-in-law, cousin, aunt, uncle, niece, nephew, former spouse.
• Being off the list makes a transaction unlisted rather than safe; section 1031(f)(4) still asks whether a deal was built to defeat the related-party rules.

For entities the line is more than 50 percent, measured in value or in capital and profits

Section 267(b)(2) makes you and a corporation related where more than 50 percent in value of its outstanding stock is owned, directly or indirectly, by or for you. Section 267(b)(11) and (b)(12) extend the same threshold to two S corporations, and to an S corporation and a C corporation, with common ownership above half.

Partnerships come from the other statute. Section 707(b)(1) reaches a partnership and a person owning, directly or indirectly, more than 50 percent of its capital interest or profits interest, and two partnerships in which the same persons own more than half of each.

Mixed pairs are covered by section 267(b)(10): a corporation and a partnership are related where the same persons own more than half the corporation's stock by value and more than half the partnership's capital or profits. Two corporations in the same controlled group are related under section 267(b)(3).

Measure the percentage on the day of the transfer, not on the day the entity was formed. A redemption, an admission of a new member or the vesting of a carried interest can move a holder across the 50 percent line between the contract and the closing.

Trusts and estates are related through the people standing inside them

Section 267(b) treats as related a grantor and a fiduciary of any trust, two fiduciaries of trusts sharing a grantor, a fiduciary and a beneficiary of the same trust, a fiduciary of one trust and a beneficiary of another with a common grantor, and a fiduciary of a trust and a corporation more than half owned by the trust or by its grantor.

Estates get their own paragraph. Section 267(b)(13) makes an executor and a beneficiary of that estate related, "except in the case of a sale or exchange in satisfaction of a pecuniary bequest" - a narrow carve-out for the executor who sells to a beneficiary to fund a fixed-dollar legacy.

If the estate is the seller of the property you want, read that paragraph alongside buying your parents' house from their estate before you identify it.

Attribution can make an entity related to you that you barely own

Section 267(c) supplies constructive ownership. Paragraph (2) treats an individual as owning the stock owned by his family, with family defined by paragraph (4); paragraph (1) pushes entity-held stock out to shareholders, partners and beneficiaries proportionately; paragraph (5) stops most double attribution by refusing to re-attribute family-attributed stock onward.

Section 707(b)(3) applies the same rules, other than paragraph (3), to partnership capital and profits interests. Hypothetically: you hold 30 percent of an LLC and your daughter holds 30 percent. Her interest is attributed to you, you are treated as holding 60 percent, and the LLC is your related party even though your own stake is under a third.

A single-member LLC is not a separate question at all. The Form 8824 instructions treat an exchange made by a disregarded entity owned by you or a related party as your own exchange; see can an LLC do a 1031 exchange.

What the answer changes, and what it does not

If the other side is related, the consequences split by direction. Selling to a related buyer while buying from an unrelated seller is generally workable with disclosure, which selling to a family member covers; buying from a related seller who takes cash generally is not, which buying from a relative covers.

In a direct swap, being related starts the clock in the two-year rule and adds Part II of Form 8824 for two further years.

A separate list governs who may act as your qualified intermediary; agents and relatives are disqualified persons under different rules entirely, set out in whether your attorney or CPA can be your intermediary. Run your own facts past your CPA or attorney, because ownership percentages and fiduciary roles are easy to misread from memory.