1031 Exchange/ Inheritance

[Rebecca Styer]

My father wants to sell me his property for $1. It's a paid off 3 unit that I would like to 1031 exchange for something much larger and I'd like to pay him back. He wants to avoid taxation of selling it and he wants to put it in my name sooner rather than later, but would still appreciate being repaid for it. I don't want it in my name. I want to put it in an LLC. Can a family member sell it to me for $1 if it's in an LLC? I'm going to ask my lawyer but I thought I'd pose the question here since it's probably a unique situation that may have not been discussed here before.

[Jacqueline Gardiner]

Hi Rebecca, Here are a few things you might want to consider. If he sells it to you for $1, then that is what your tax basis is, and anything more than that will be your gain. If you inherit it when he dies, then your stepped up basis will be the value at that time - which means you could exchange it then without any tax liability. He could put it into an LLC now and then gift you a portion of the LLC. The LLC could then do the exchange for something larger in which you might be partners. (I think you would have to wait for a year after putting it in the LLC before making that move.) This is all just food for thought. But, you should get some advice from someone knowledgable about taxes in addition to the lawyer.