1031 for 4-PLEX to larger MF

[Neera Melwani]

Hi BP Community! I hold a number of 4-plexes in my personal name and am considering selling them to purchase a larger multi-family property. The larger property will be required to be held in an LLC. If I am the only member in the LLC, would that qualify for a 1031, or will I run into legal entity issues?

[Dave Foster]

Thanks for those kind words @Bill B..  You are correct, @Neera Melwani, married filing jointly means that you are seen as the same taxpayer regardless of who is on deed. BUT.... there is a little quirk when it comes to LLCs. A husband/wife LLC may only be considered a single member disregarded LLC in a community property state. If you do not live in a community property state then technically you are required to treat a husband/wife LLC as a partnership. And that LLC has to file a tax return. So you could not sell as yourselves and buy as a husband/wife LLC in a non-community property state.

Now, I say technically because I see husband/wife LLCs all over the country that treat themselves as single member.  And I don't hear of any issues.  But the official position of the IRS is different.  Just something for you to discuss with your accountant to make sure you're all on the same page.

But you and your husband could sell as yourselves and buy as an LLC that only one of you is the member of. That could be a disregarded LLC and would be fine.