1031 between spouses?

[Derek Sperzel]

My Wife and I own SFR properties in Springfield, Ohio and we live in Indiana. My Wife has a W-2 and I've been a fulltime investor for about 5 years. The Properties in Ohio are in an LLC owned solely by my Wife and they are all owned free and clear. I've got a 16 unit complex under contract in Indiana near where we live and I want to sell one of our Ohio SFR via 1031 to help with the down-payment. All our Indiana properties are in single member LLCs in my name only (my Wife isn't active whatsoever in any of the rentals and inherited the Ohio properties). Is there a way to lawfully 1031 any of the Ohio properties into a new investment in Indiana and do so into an LLC not owned by my Wife (they'd go into an LLC owned by me solely)? OR could we do a partner LLC between her and I?

I'm assuming there are 1031 rules against this, but want to confirm. Thank you in advance.

[Dave Foster]

Thanks for the shout out @Luke Anderson.  @Derek Sperzel, If you and your wife file a joint tax return then you and she and those single member LLCs are the same taxpayer (as long as the LLCs do not file their own tax return).  In a 1031 it's not the deeding that is so important to the IRS (they don't even know how a property is deeded).  It is where the property is reported (on which tax return because that is how you communicate with them).

So as long as the new property is still reported on the tax return that reported the old property you are fine. Specifically to your question - you could sell as the Ohio LLC (your wife as member) and buy a property as an IN LLC (you as member). And that would not change where the property is reported - in both cases it will be reported on you and your wifes personal tax return.

As a matter of fact you would not want to do anything with an LLC that has both of you as members because IN is not a community property state and an LLC when you live in a non-community property state that has both you and your wife as members is supposed to be treated as a partnership. And that would create a different tax payer.

So, yes there's several ways to accomplish what you're looking to do.