No, it will not work. It is designed specifically to avoid taxes and is therefore tax evasion.
You father could sell his farm to a non-related party, and then buy your property from you as his replacement property. However, since this is a related party transaction and you are essentially ending up with the funds, it will only work if you also complete your own 1031 exchange transaction. If you merely “cash out” when he buys the property from you then his exchange would not qualify.
Before I explain my question let me state that I know exactly what is going on in this proposed transaction and know all the parties involved and have complete trust in doing this. I’m just wanting to see if you think it will work, and if there is a better way. I’m not being swindled just trying to help out my father.
My father is selling his 150 acre farm ground and wants to do a 1031 exchange to buy my 200 acre farm ground (much higher in value than his). He can’t purchase ground from me and do the 1031 though…is that right? My property has a loan at about 48% loan to value on it.
What he’s wanting me to do is sell my ground to a trusted family friend who would give me a promissary note for the property and paying off my mortgage. Then in 30-45 days my father would purchase the property from the family friend thus allowing the 1031 trustee to allocate my father’s funds to purchase the property completing the 1031 exchange. I would then workout an agreement with my father to pay back the 48% loan that I had on the property to him since it would have been wiped from the property.
Do this seem like it will work? I feel like there might be a better more airtight way of doing this. What do you think? Could the property be bought by the family friend into a trust and then the beneficial interest be assigned to my father and the 1031 be completed? Is that considered a sale? The reason I ask that is just to try and keep everyone’s name off of record might help things …if even just slightly.