Quit Claim 1031 Exchange

[Soraya Kashani]

My husband & I have several properties we purchased with 1031 exchange monies. We have recently started an LLC and would like to quitclaim those properties to the LLC. Is this allowed or would it throw up a red flag to the IRS as a sale?

[Bill Exeter]

If the LLC is a two-person LLC treated as a partnership for tax purposes (e.g., you file a partnership tax return and receive K-1s), you should hold the properties long enough to show that you and your husband intended to exchange into them and hold them as rental, investment or business use properties. Those over two years would be safe. Those less than one year should probably be delayed until past one year and 2 tax periods. It all boils down to demonstrating your intent to hold.

However, if the LLC is considered to be a single member LLC and disregarded entity for tax purposes then it does not matter when you contribute the properties into the LLC>