Marcie owns a 10 percent interest in a shopping mall located in Portland, Maine. Her adjusted basis for her interest is $250,000, and its fair market value is $900,000. She exchanges it for undeveloped land in York, Pennsylvania, that is held by her sister, Sandra. Marcie is aware of the §1031 related-party requirement that neither she nor Sandra dispose of the property received for a two-year period. Both Marcie and Sandra intend to hold the properties as long-term investments. However, they agree to notify each other if a disposition does take place within two years of the exchange.
During the next six months, the land that Marcie received in the exchange continues to appreciate. Due to poor management, however, the value of Sandra’s interest in the shopping mall declines to $700,000. As a result, Sandra is angry with Marcie and vows “never to speak to Marcie, her husband, or any of Marcie’s children again.” As Marcie receives no communication from Sandra during the next 18 months, she assumes that her gain of $650,000 will continue to be deferred. Evaluate Marcie’s assumptions and justify your answer
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