livepassive asked:


A relative is doing a 1031 exchange on an investment property into another investment property. It is a house I will be living in and will eventually get the entire property. My question is this: Can I take out a mortgage in my name, on a 1031 exchange property that is not in my name? If so, does it have to be an non-owner occupied loan?

Dale

5 Responses to “1031 Exchange - Can I take out a mortgage in my name on someone else’s property?”

1. bostonianinmo on August 21st, 2010 7:05 pm

   No, because you don’t have the legal authority to encumber property that you do not own.

2. jimmy dean on August 25th, 2010 6:51 am

   Sounds like the house that is being purchased as a part of the exchange would have to be in your relative’s name.

3. KP on August 26th, 2010 11:11 pm

   No, you cannot encumber property that you do not own. Your relative is probably trying to escape capital gains tax by selling his other property. The only way to escape that is to use the property as his primary residence (at least on paper) for two years and then sell it to you, he won’t have to pay capital gains on the property that way. Make sure he files his taxes as a income property though for the first calendar year taxes or it will look very suspicious to the IRS. So basically it is a three year process.

4. Christine on August 29th, 2010 4:37 pm

   You can’t. I’m trying to think of a senario where you can he doesn’t get dinged for boot, but I can’t.

   If he were to sell the property to you down the line, he’ll pay gains. You absolutely can’t take a loan on a property that your name isn’t on. Somewhere down the line the relative can add you onto the title, but that may incurr additional property taxes. Then you may be able to take a mortgage on it, but their name would need to be included.

   It’s not a big win situation any way you look at it.

5. www.JBienesRaices.blogspot.com on August 30th, 2010 11:12 pm

   First of all what your relative is trying to do (1031 exchange) is NOT illegal. This is a way to delay the tax liability this relative might have for the profit he may gain on the property when sold.

   Now, you CANNOT take out a loan on a property you do not own. If this was in any way possible, anybody could take out loans on anybody’s property. You can only take out a loan (put a lien) on your property if you legally own that property.

   To explain your question about the non owner occupied loan, this would apply to your relative because he is the one that owns the property. Therefore he would take out a loan on a non-owner occupied property. Your relative does not use this property as his/her primary residence therefore it is a non-owner occupied property belonging to your relative.

   Someone mentioned to you about the possibility of not paying taxes if your relative lived in the property for 2 years. I am affraid to tell you that this tax rule is a little more complicated than that and this person is only telling you what they’ve heard not what is actually is. Besides this rule would not apply to your relative anyways.

   Good luck.