July 2026 Real Estate & Investment Newsletter

Presented by Bjarne Conrad Conradsen and Franck Bideau

Real Estate Broker | Realtor® | Commercial Broker

Certified in Investments and probate. 

Serving South Orange County & Southern California (lic in whole California)

1031 Exchanges, Family Members & Unintended Tax Consequences

A Section 1031 Exchange is one of the most valuable tax-deferral strategies available to real estate investors. However, when family members become involved, what appears to be a simple decision can create significant tax, estate planning, and ownership issues if proper planning is not completed before closing.

Whether your goal is to provide housing for your children, build generational wealth, or expand your investment portfolio, understanding these issues before purchasing replacement property can save your family thousands - or even several hundreds of thousands - of dollars in future taxes.

Why Planning Matters

Many successful 1031 Exchanges involve:

• Purchasing rental property for children
• Multi-generational investment planning
• Family partnerships
• Estate planning
• Long-term wealth preservation

These goals are entirely achievable—but only when your Broker and Realtor® Conradsen, And Qualified Intermediary, Franck Bideau - CPA, and Estate Planning Attorney work together before the transaction begins.

Investment Intent Is Critical

To qualify for a successful Section 1031 Exchange, the replacement property must be acquired with the intent of holding it for:

• Investment purposes, or
• Use in a trade or business.

The IRS evaluates your intent at the time you acquire the replacement property.

Although future use alone does not determine qualification, changes in how the property is used later may be considered evidence of your original intent.

Strong evidence of investment intent includes:

✔ Written Lease Agreement

✔ Fair Market (or near-market) Rental Rate

✔ Regular Collection of Rent

✔ Reporting Income on Schedule E

✔ Treating the Property as an Investment

Proper documentation can significantly strengthen your position should the IRS ever question the exchange.

Renting to Children Below Market Value

Many parents naturally want to help their children by offering reduced rent.

While understandable, charging substantially below-market rent may weaken the property’s investment purpose.

The farther the arrangement moves away from an arm’s-length rental, the greater the potential IRS scrutiny.

If your objective is both investment and family assistance, discuss the structure with your tax advisor before purchasing the replacement property.

Should You Add Your Children to the Title?

Another common strategy is purchasing replacement property and adding children as Tenants in Common (TIC).

While this may be acceptable from a 1031 standpoint when properly structured, many families overlook the long-term legal and financial consequences.

Potential concerns include:

• Loss of future tax advantages

• Exposure to a child’s creditors

• Divorce or legal claims

• Financing complications

• Estate planning issues

• Loss of flexibility when selling

Before changing ownership, consult with your estate planning attorney to determine whether a trust or other ownership LLC / Corp or other structure may better accomplish your family’s goals. Preserve the wealth without exposure.

Don’t Accidentally Lose the Step-Up in Basis

One of the greatest tax benefits available to heirs is the Step-Up in Basis.

Generally, property included in a person’s taxable estate receives a new tax basis equal to its fair market value at the date of death.

This can eliminate substantial capital gains taxes for heirs.

Unfortunately, adding children to title during your lifetime may unintentionally reduce - or eliminate - that valuable tax benefit.

A decision that appears harmless today could create a much larger tax bill years later.

This is called planning before the fact, not damage control after the fact.

Questions Every Investor Should Ask Before Closing

Before completing your exchange, discuss these questions with your advisors:

✔ Will the property be rented at fair market value?

✔ Will there be a written lease agreement?

✔ How will rental income be reported?

✔ Is adding children to title truly necessary?

✔ Would a trust better accomplish the family’s objectives?

✔ How could lifetime gifts affect future basis adjustments?

✔ What happens if the property owner passes away shortly after completing the exchange?

The answers to these questions often determine whether a family can preserve both the tax benefits of the exchange and their long-term wealth transfer goals.

Building Multi-Generational Wealth

A properly planned 1031 Exchange can do much more than defer taxes.

It can become part of a larger strategy to:

• Build family wealth!
• Preserve appreciated real estate.
• Create passive income.
• Assist children with housing.
• Expand investment portfolios.
• Improve estate planning.
• Reduce future capital gains taxes.

With thoughtful planning and coordination between your Realtor®, CPA, Qualified Intermediary, and Estate Planning Attorney, many families successfully achieve both tax savings and legacy planning objectives.

Bjarne’s Real Estate Insight

Many investors focus exclusively on saving taxes today while overlooking how today’s ownership decisions affect their family’s future.

As a Real Estate Broker, I frequently encourage clients to assemble their advisory team before entering escrow—not after.

Early planning can help avoid costly mistakes while maximizing both investment opportunities and long-term wealth preservation.

Every family’s situation is unique. The earlier these conversations begin, the more options are usually available.

Need Help Planning Your Next Exchange?

Whether you’re:

• Selling investment property
• Purchasing replacement property
• Considering family ownership
• Evaluating rental property
• Planning retirement investments
• Looking to preserve generational wealth
• Probate sales and guidance (Bjarne Conrad Conradsen certified in probate)

I’d be happy to discuss your real estate goals and help coordinate with your CPA, Attorney, and Very Qualified Intermediary below this my GO TO 1031 advisor.

Franck Bideau 949-508-9827 FBideau@exchangeresources.net

Contact Bjarne Conrad Conradsen

Bjarne Conrad Conradsen

Real Estate Broker | Realtor® | Commercial Broker

Serving:

• Irvine
• Lake Forest
• Mission Viejo
• Laguna Niguel
• Laguna Hills
• San Juan Capistrano
• San Clemente
• Newport Beach
• Costa Mesa
• Orange County - San Diego - Riverside - San Bernadino – Los Angeles