1031 Exchange partnership

[Ron Pfister]

I am part of an LLC that wants to sell a property using the 1031 exchange..

One of the 6 partners does not want to exchange and wants to take his

money out and pay the necessary taxes.....

Is it possible to pay this partner as a distribution and have the remaining

partners complete the 1031 exchange?????

[Dave Foster]

@Brendan H., LLC A has two problems. First is it utilizing a 1031 exchange to purchase a property that it has the primary intent of reselling not holding for productive use - not appropriate for 1031.

More importantly, LLC A may not have a gain on the sale of Property 2 but since the basis of property 1 was carried over and that gain deferred into property 2, LLC A now recognizes the full amount of gain that would have been due without doing the 1031.

So basically it would result in the same tax plus the cost of doing an inappropriate 1031.

Have LLC A do the 1031 and keep enough boot to pay the taxes and buy out the member's interest. they will endure the tax hit but they want out anyway.