1031 exchange into new construction

[Craig Willis]

Hello all. I'm new to this forum and have read some good advice. I am about to start construction on a large multi owner building. We all will own shares of an LLC that will own the new building. There will be a construction loan and then permanent financing when construction is completed. I have 2 rental properties that are paid for and may want to do a 1031 into this new building. Can I do it at the time of signing permanent financing?

[Dave Foster]

@Craig Willis, I think @Alex Olson may be on to something. The issue I see are that you can sell property in your name and buy property in your name. But you couldn't purchase membership in the LLC. But like Alex says you might be able to sell your properties and buy a tenant in common % of the property from the LLC. That is if you are not a related party to the LLC (meaning you don't own more than 50% of the LLC).

What gets interesting is the daisy chain backwards that could create. So the LLC is selling a % of the new building. That means they will probably get tagged with ordinary income on the profit. Timing of financing isn't really the issue. You simply have to be able to take title to the real estate. So whenever that is available - now or at finance conversion, or after doesn't matter.

Secondly you'll have to figure out a management structure then since there will be two owners - the LLC and you. So you'll want management details spelled out very clearly.