Can a real estate holding LLC serve as a 1031 exchange?

[Josh Acuff]

I am about to establish my LLC for my real estate holding company. I had a potential investor ask me if the LLC could serve as a 1031 exchange as he was about to sell a property but doesn't have another property lined up. He wanted to know if my LLC would qualify as a 1031 exchange so that he would be seen as reinvesting his money and delaying the capital gains he would owe on the property he's selling. Does anyone know if my LLC would qualify?

[Natalie Kolodij]

Originally posted by @Josh Acuff:

Chris and Matthew, thanks for your replies. It seems that you both understand the question correctly. My investor would be selling a property and then would place the proceeds of that sale under my LLCs custody to BRRRR invest into a real property.

From the sound of things, that does not qualify as a 1031 exchange. Even if we are able to demostrate exactly what property his funds went into purchasing? Thanks to you both for your responses!

The issue is selling proceeds from a property and investing in an ownership in an LLC does not qualify.

However- there could potentially be a way to structure this. The 1031 essentially needs the same person who does the exchange and purchases the new property. 

He could sell his property, 1031 into a new property. And then there could be some type of JV agreement to add you to the new property, or add you to the property via an LLC down the road.

@Dave Foster is the expert to talk to about this.