Quitclaim deed from personal name to LLC after completing a 1031 exchange

[James Bakun]

Hey All! My friend is interested in doing a 1031 exchange with an investment property. Both him and his wife currently own the property in their personal names and plan to maintain that ownership structure when selling the relinquished property and purchasing the replacement property. This avoids any complications with the 1031 exchange.

However, after the exchange, they want to transfer from personal name to an LLC under their Holding Company to protect their assets. It appears the IRS may withhold tax deferral if ownership changes immediately after the exchange. I noticed some 1031 intermediaries have stated there is no legal requirement for "time limit" after the exchange is complete to quit claim to an LLC, but some recommend holding it in the same title for "some time."

Does the IRS ultimately look at the investors' intent when they quitclaim right away?  In this scenario, both are transferring from personal names to their Holding Company for asset protection, indicating good intent. Since they both will own the Holding Company, it will technically remain the same "taxpayers."

Any advice or concerns on how to approach this?