Selling a single family house to reinvest into syndication

[Richard Young]

Hi,

Does selling a single family home and taking the profit to reinvest in a multifamily syndication qualify as a ‘like kind’ investment? I have held the asset for 6 years so it is not a short term investment.  Thanks

[Dave Foster]

@Richard Young, It all depends on your definition of syndication and how that matches up with the structure of the product you're wanting to buy.  

Easiest to start with the 1031 requirement.  You must sell investment real estate and purchase investment real estate.  As @Basit Siddiqi said, a membership interest in an entity that owns real estate does not work - usually. So most of what are being called syndications these days are set up as LPs or LLCs. You cannot 1031 the sale of real estate into membership interest in an LP or LLC that owns real estate. You must take deeded title to replacement real estate. This is why a "syndication" set up where you can purchase a tenant in common interest in the asset itself will work.

The other exception would be the membership in an old school land trust or Delaware Statutory Trust which was blessed by the IRS in 2004. Although you do not get a deeded title to actual real estate the IRS concedes that the DST structure will qualify for 1031 treatment. The DST is not typically thought of as a "syndication" product. But it works much the same way as the LP syndications being put together by folks out there.