URGENT: 1031 Exchange Questions

[James Boreno]

Hello,

Currently in a 1031 Exchange and have a few questions.

We sold this property last week and we are currently in a 1031-exchange. We are trying to figure out how we can hold title to the new property. Our 1031 exchange agent mentioned to us that it needs to mirror the relinquished property, In this case having the mortgage note under my fathers name, and holding title under the LLC, and also how it was reported on taxes.

The problem is that it's very hard to get a loan for my father on a new property with vesting being under the LLC at closing. It's possible but not with our portfolio lenders and we like their rates...

1) In 2019, we filed the property taxes under the LLC returns. - but in 2020 we filed the property taxes under our personal returns. Our 1031-agent mentioned that if there is a 2-year history of the property being reported under our personal returns, we can potentially vest under our personal names for the new property we purchase - Is this true?

2) For the new property we purchase - Would it be possible to vest under our personal names, then on the same day record the new property back into the LLC to satisfy 1031 requirements?

Thank you!

[David M.]

@Dave Foster can you chime in?

@James Boreno this is definitely a bit messy... Well, lets start with what I know (better). As Dave has posted before, the 1031 has to follow the SSN... Also, the "frankestein" mortgage in your father's name but Title in the LLC I find to be potentially problematic in maintaining your corporate veil. Disregarded entities for LLC's are for Federal tax purposes for single member LLC's... so...

Since Title is held by the LLC, I am guessing that the next 1031 owner needs to be the LLC. The mortgage in your father's name is just a sort of financing.

My comment about the mixed holding is protecting the corporate veil of your LLC. Co-mingling funds and using the LLC as an alter ego are sure fire ways to pierce the veil. Remember, the LLC only provides limited liability protection if operated correctly. It doesn't provide tax or accounting benefits. You need to conduct business as if the LLC is "another person," as indeed it is its own legal entity. Okay thats enough, your question was about 1031...

Only single member LLC's can be considered disregarded entities for Federal tax purposes and thus doesn't file a separate tax return. Multi-member LLC's should file a 1065 partnership return, which spits out a K-1 (like a W-2 or 1099) so that the members can file their 1040 returns. You'll have to consult with a competent professional or two if the 5% holding by your mother puts her into some sort of "silent partner status." Honestly, I don't think so...

I'm not sure how or what you are using the term "vesting..."

IF what I am thinking is correct, your LLC needs to sell the property (via a qualified intermediary) and the 1031 purchase must be done by the LLC. I am guessing that your tax returns may need to be corrected. Whatever you are saying in your option 2 I am thinking is wrong... You can't go swapping names..