Can you 1031 Exchange into a syndication as an LP?

[Brian Kantor]

Hi there. My parents are selling a commercial property they own in full that's held in an LLC (of which they are partner members. Can they 1031 exchange the proceeds from that sale into a syndication deal as a limited partner? If so, what would be the stipulations or things to consider?

Thanks!

[Dave Foster]

@Brian Kantor, There's really two issues here

1. They don't own real estate now. So there is nothing for them to 1031. What they own is a membership interest in an entity (the partnership LLC) that owns real estate. The LLC can sell and do a 1031. But all partners have to go forward together since it is the LLC that owns the real estate. Or they may choose with the advice of their accountant to dissolve the LLC prior to the sale and distribute the property to each former member as a tenant in common (there's that phrase you've been hearing - it means that multiple people own real estate - it just happens to be a % of a larger piece). Then they own real estate and can do a 1031.

2. The second issue, once they resolve issue #1 is that they cannot 1031 into a position as a member of a limited partnership for exactly the same reason.  They are not buying real estate.  They are buying a membership interest in an entity that owns real estate.  As several folks said the only way to make this work is if the LP can carve out a piece of the actual real estate and sell that to you so you become tenants in common.