1031 Exchange into a building to be held with partners?

[Liz Knight]

I have two partners who both have their properties on the market. One of them, Partner A, needs to do a 1031 exchange into the new property (which we haven't identified yet). What's the best way to qualify for a loan on the new property? How should we structure the entity to hold the new property? We need asset protection, but also like-kind treatment for Partner A and flexibility in our exit strategies. 

I'm already pre-qualified for a loan, to partner with these other partners I'd be able to afford a larger building than on my own. 

Should Partner A put her property into a Land Trust now before the sale so that she can purchase her share of the building in the same entity as the one that sold?

What are your thoughts on this?

[Bill Exeter]

The partner that needs to complete a 1031 Exchange must acquire a direct interest in the real estate to be acquired, which often takes the form of a tenancy-in-common interest, in for his/her 1031 Exchange to qualify.  The percentage that he/she owns in the new property must be equal to or greater in value than the property he/she sold. 

If either or both of you are concerned about liability, you can each set-up your own single member LLC to hold your individual tenants-in-common interest, which will be treated as disregarded entities (ignored) for tax purposes and will still qualify for his/her 1031 Exchange.

Multiple member LLCs (treated as partnerships), partnerships, corporations, etc., will not work because he/she will be treated as buying a partnership interest or shares in a corporation, which do not qualify for 1031 Exchange treatment.