Transfer to LLC before exchange?

Question

I'm new to this and thinking of exchanging a fourplex near San Diego for some properties nearer to my residence, in Wisconsin.  I received the property from my mother as  gift (not inheritance) so there is quite a bit of tax liability if I just sell it.  I'm thinking I need to have an LLC for any rental property that I have, and so I have been trying to understand what I need to do to transfer this California property into a Wisconsin LLC; and if I need to do that before the exchange.  If not, then is there any problem with purchasing the replacement property as an LLC?

Dave Foster · Answer

@Cassandra Brown, If you're thinking to do this shortly you may want to wait and do it after the 1031.  A change of taxpayer (if you're not using a disregarded LLC) would need to season a bit.  And A WI LLC Has to be registered in CA so there's an added level of cost that you don't have to incur.  And lastly, if you sell in your name and buy in your name before contributing to an LLC you can probably access more advantageous financing.

Cassandra Brown · Answer

Thank you so much; after these comments I have contacted a real estate/tax attorney for a consultation as it seems that I need a much longer term and wider view of the situation.  Its a little terrifying, actually.  I've just had so much trouble trying to manage an apartment rehab from a long distance, even though I have a manager for the fourplex,  that I feel I need to move everything closer to my home.

Twana Rasoul · Answer

Hi Cassandra,

I'm happy to discuss some of the options with you (currently working on multiple 1031 exchanges throughout San Diego County) but this is very critical and you should engage an exchange accomodator before thinking about your 1031 exchange to make sure everything is done properly and you don't end up with an unexpected tax liability.  I'd be happy to connect with one if you'd like.