1031 exchange, then into LLC

[Bob Orange]

I have a property I would like to sell and use the 1031 exchange provision to buy another. My current property is in my personal name. I plan on exchanging into another property (possibly several) in my personal name as well. However, I would eventually like to put it into an LLC in which my brother and I own 50% each. Is there a "seasoning" period I should allow to pass before using a general warrantee deed into the LLC? And does putting it into a multi-member LLC somehow void the 1031 exchange?

thanks.

[Dave Foster]

@Bob Orange there is no seasoning period specifically. What you'll be doing in essence is changing the tax payer by putting it into a multi member LLC. Not a problem in and of itself. But the question could always be asked of your intent in taking title to the new property in your name first.

In order to qualify for a 1031 exchange you must sell property that you acquired with the intent of holding for productive use.  And you must buy property with the same intent.  It's much more of a bugaboo to change the tax payer right before a sale.  The IRS most emphatically does not like this process . because the intent of the entity that you change to is clearly taking title only to resell.  

When you do it after an exchange is complete there is not nearly so much angst from the IRS.  Did you buy the the intent of holding but the opportunity to still hold it but also add a partner came up so you changes your intent?  Are you considering yourself to still be holding the property but in a new entity which affords you more liability protection?  Those are the kinds of things you want to be able to say if ever questioned.  But for the most part there's not a problem in completing a 1031 exchange and then quit claiming into a new entity.  

And if you took an intermediate step and first put the property from your name into an LLC that you are the sole member of you would not even be changing the tax payer at all. A single member LLC that does not file a tax return is disregarded by the IRS and you would still be the taxpayer until you officially added your brother as a member of the LLC and began reporting as a partnership.