One person 1031 Exchange out of a 4 person LLC. Is it doable?

[Joe Maris]

Is it possible for one person to do a 1031 exchange out of a 4 person LLC? LLC was formed by 4 people (25% each) to purchase a commercial property. I am buying out the other three. I can dissolve the former LLC and start a new LLC with new financing, or maybe keep the existing LLC and buyout the other three. We all stand to make a good profit (capital gains) from the sell. Can I 1031 exchange just my profit to reinvest in the same commercial property? Can you recommend someone with expertise in this type of transaction? Is there a better way to use the profit/capital gains and reduce/eliminate taxes on just my share?

[Dave Foster]

@Joe Maris, you can use either way to accomplish what. you want. Your CPA may prefer one or the other. If you buy out the LLC membership interests of the others then sell and have the LLC do a 1031 then your reinvestment target will be much higher (the net sales price of the old property by the LLC). But that is a pretty conservative and tried and true approach. The LLC is simply selling and doing a 1031. the IRS doesn't care who the members of the LLC are

The other way you mention is what would be called a drop and swap. The LLC is dissolved by quiet title right before the sale closes and title is placed into the 4 former members as tenants in common. The the 4 tenants sell and each has the opportunity to either take the cash for their 25% tenant interest. Or they can do their own 1031 with their 25% interest. This way has the advantage of making the reinvestment target lower. And you have to come up with less cash to buy them out. You can let the sale do that. It has less case law upholding it over the years. But there have been several cases involving trusts and a couple very new cases that compare LLC membership with tenants in common interest as relatively equivalent as ownership of real estate.