1031 Exchange with Partnership

[Sean H.]

Recently on a BP podcast @Brandon Turner mentioned that he was able to take his apartment unit, 1031 exchange into the mobile home park that he did with a couple parnters.  He mentioned that because you are not able to change entity structure when doing the 1031 that he had to do some type of other structure with his partners.  I am looking to do something similar in Iowa where I want to 1031 exchange a property (that I currently own) but use the proceeds on a deal with a partner of mine.  Anyone have any details of how to go about this transaction?

[Dave Foster]

@Sean H., I'm a little fuzzy on what you're trying to do here.  There's a couple of moving parts.  First you can't exchange into property you already own.  So that could be a non-starter for you.

Second, @Jeffrey Holst make a great point in that if you're actually selling a property and 1031ing into a new property that you want to own with a partner.  There's nothing wrong with that and as Jeff points out it's really all about the valuations and taking title as a tenant in common to as much property as you sold.  Your partner can take title to the remaining % as a tenant in common also.  That would be the most common way to partner up but stay 1031 compliant.

Since tenants in common can be awkward, after the 1031 is over it is possible to take each tic interest and contribute it into a new entity in exchange for membership interest in the entity.  Then that entity would own and manage the new property.

Another option which gives you greater 1031 flexibility would be to 1031 into tenants in common and remain tenants in common but have a master operating entity that contracts with the tenants to manage the property.  Or have that master entity lease the property from the tenants in common with rights to sub lease.