Selling TIC LLC Interests from 1031 - Legal/Tax Question?

[Matt S.]

Hi All-

A few years ago I did my first 1031, selling a condo in Brooklyn and doing a 1031 exchange into a multi-family syndication in Atlanta. I purchased a Tenants in Common (TIC) interest alongside a syndicator (I own 5%, GP/LPs own 95%). I made the purchase through a single member LLC.

The GP reached out to me to relay they've negotiated the sale of the property with a tentative 2/15 closing. To achieve the highest price, the GP gave the buyer the option to buy partnership interests in our respective LLC's, rather than a transfer of real estate. I have a very high level understanding of what this means (could be beneficial for buyer from a tax perspective), but very little idea what this means and if there's anything I should be thinking about, negotiating, etc.

If anyone has any thoughts, comments, recommendations on who I could speak to about this it would be appreciated.

-Matt

[Dave Foster]

@Matt S., Interesting question.  Unless something has happened along the way it would appear that you still own a 5% tenant in common interest in the real estate.  And unless theres an agreement or operating document somewhere that specifies other things I don't think that GP can obligate you in any way.  If you don't own membership interests in the GP then you own real estate.  And if you own real estate then you can't sell membership interests in the GP to the buyer.  So I would think your interests will convey separately.

If you sell the real estate you can do another 1031 and continue your tax deferral.  If you are somehow selling membership in the GP then you are paying tax.