Partnership and a 1031

[Max Shaw]

Hello All,

I have a question that I can't seem to find a clear answer on.

I have a single family property that my wife and I purchased with a partner. All 3 of our names are on the note. We currently have the property under contract to be sold. My question is, can I take my wife and I's 50% profits and roll it into our own property using a 1031 or will we have to all (all 3 owners) use one 1031 exchange account to purchase a property and continue the partnership.

Does that make sense?

Thanks in advance for the help!

Max

[Dave Foster]

@Max Shaw, That's the right attitude.  45 days is usually more of a psychological barrier than anything.  But it still can cause angst.  Of course as much as you can use the contract periods to add a little cushion.  The statutory order only requires that the old property sale close before the new property purchase closes.  But you can go into contract for your purchase whenever you want.  

@Darren Co, An LLC with 3 members is going to file it's own tax return and issue K1s. That means that the taxpayer for the property is the LLC. So the LLC and do an exchange on the property sale but not the individual members.

A couple of options you could explore-

1. Have the LLC do a partial exchange and take some boot which would be taxable and then buy out the membership interest of the 3rd partner in exchange for cash minus the tax liability the LLC will be incurring.

2. The LLC could to an exchange and purchase two replacement properties and again take an amount of boot. After the fact you can work with your accountant to dissolve the LLC and distribute the assets to individuals - a property to each partner that wanted to remain in real estate and use the 1031. And cash for the remaining partner and the associated tax liability.

There's other twists on these and it can get a little complicated but working with your QI and tax planner it can be done.