1031 question

[John Hauser]

Hey Everyone (and Bill Exeter!). Have a question about selling a rental property currently owned by me and two partners. Right now me and one of the other partners wants to buy a new rental property, and the other wants to take his money and run. We had intended to hold this property for a long time but after a year, one of the partners said he wants to sell.

Questions:

Can I and the other partner 1031 exchange our proceeds into another building?

And with one of the partners taking his cash, will the remaining partner and I have an issue meeting the requirement that we have the same amount of equity in the replacement property as the relinquished one?

Thanks for any advice!

John

[Bill Exeter]

Originally posted by John Hauser:

Ok this is all great info. But how would it have played out differently if an LLC owned the property? Wouldn't the LLC also have to buy the next property to do the 1031 exchange?

It would depend. It is virtually impossible to transfer (drop) property out of a corporation without adverse tax consequences. However, it is possible to transfer (drop) property out of a partnership (i.e. a multiple member LLC) without adverse tax consequences. The flexibility of LLCs can help us proactively plan for 1031 Exchanges if we have sufficient to plan. There are many ways to structure 1031 Exchanges when an LLC is involved.