Join Venture with foreign nationals and 1031 exchange

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Join Venture with foreign nationals and 1031 exchange

Daniel Suarez
Fairfax, VA · Member since 2017 · 183 posts · 58 votes

Hi All, 

I have a multi-family under an LLC with my partner that we plan to sell and 1031 exchange for another bigger multifamily. The other LLC is much more expensive and we plan to join forces with another foreign national LLC. Since we're doing a 1031 exchange, the new property would also be under the original LLC, not including the foreign nationals in the title.


Our plan was to buy the property with the original LLC and get a commercial loan with the original LLC (the title and credit will be under me and my originals partner's LLC) Once we do that we plan to form a Joint Venture where all of the income and proceeds of this property will live and it will include the foreign national members.

The reason we would do that is because getting credit with foreign nationals is very hard, and the new property needs the same owners needed originally. I would love to hear some thoughts on this. Thanks so much in advance. 

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    4y

    @Daniel Suarez, You may be overly complicating things. Since the LLC is a multimember it is a regarded entity. So it has to sell and do the 1031 exchange and purchase the new property. But the IRS does not care who the members of the LLC are for purposes of the 1031. So you would really only need to add the foreign nationals or their LLC as members of yours. Simply give them membership interest in exchange for whatever they are contributing. And leave that property in the LLC. This would then also let them do a 1031 when the new property is sold since it will once again be your LLC selling and doing the 1031. My guess is the lender wouldn't mind more members when writing that note

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  • Megan Templeton
    Attorney · Birmingham, AL · Member since 2022 · 220 posts · 83 votes
    4y

    I think its a great plan. It complies with the 1031 requirements while also seperating out asset holding from operations which can help with minimizing liability. I would recommend that you work closely with your CPA as you go down this path to ensure you are complying with the applicable tax laws, particularly around working with foreign nationals, and to ensure you are minimizing the taxes that could come into play.

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