1031 Exchange - Partnership into Personal Name

[Emily Beatty]

I am considering a 1031 exchange of two duplexes - owned in a partnership LLC by my husband and myself (in Kentucky) - into a single small multi-family investment property in Georgia. The Partnership files its own taxes with an EIN and does not pass through to our personal taxes. Is it possible to deed, or transfer, the properties held by the partnership LLC into our personal names and subsequently 1031 exchange into a property in our personal names in Georgia after the deed transfer? Is there a seasoning period in which the property must be held in the personal names before a 1031 exchange can occur (assuming this is possible)? Is there another way to do this that I might be missing or am I out of luck if I wish to eliminate the Partnership LLC all together and also avoid capital gains tax into a new property? Thanks for all of the feedback!

[Dave Foster]

@Emily Beatty, It could be possible. This is what is called a "drop and swap". The LLC is dissolved, the properties quitclaimed into your names and then you sell and do the 1031 exchange in your names.

The more traditional way would be to do the 1031 exchange as the partnership LLC. And then after the 1031 is complete you then dissolve the LLC and quit claim the new property into your names.

In general contributions into and distributions from an LLC are not taxable events. The former way has become more popular in recent years due to some favorable rulings. But either way will work.