How to move a 1031 Exchange Property ownership to an LLC

[Prithvi Sri]

I recently sold an investment property and buying a restaurant building in exchange through 1031 . The relinquishing investment property was on my name which I bought many years ago. Now that the investment has grown into a considerable amount of money, I would like to put it into an LLC. So the question is, how do I transfer a 1031 exchange replacement property from my name into an LLC?

[Dave Foster]

@Prithvi Sri, it depends on what type of LLC you want it to be in.

1. An LLC that only has you as a member and chooses to be taxed as a sole proprietor does not file it's own tax return. All activity of the property is still reported on your personal return even though the deed in in the name of the LLC. This is what is called a "disregarded entity" and is fine for 1031 because the "tax payer" for the property is actually the tax return on which the activity of the property is reported on. There's nothing much you need do here except quitclaim the property to your LLC or take title as the LLC. But keeping the reporting right where it is.

2. An LLC with multiple members or one that has elected to be taxed as a partnership is what is called a "regarded entity". It will file it's own tax return. It is a different tax payer than you. So you cannot sell as yourself and buy as a regarded entity in a 1031. You must sell as yourself, buy as yourself, and then later contribute the property into the new LLC. you'll want your accountant to assist so the LLC capital accounts are reflected correctly. And they will help you determine when the feel enough time has settled on the 1031 and you can now contribute into the LLC>