Advice on property sale

[Joshua Easters]

Hi Everyone!

A few years ago, I purchased 2 vacant lots outright for a total of $24,000. I am now selling them and set to close this week at a sale price of $50,000. I would like to reinvest that money into a rental this year to avoid capital gains, but am curious as to how that should be structured. If I buy a rental, I am going to set up an LLC and run the purchase and business aspect through that. If the LLC buys the rental, how could I properly use the gains from the lots which I owned personally to buy through the LLC to qualify as 1031?

Thank you!

[Bill Exeter]

Hi @Joshua Easters,

Yes, it can qualify. Generally, the comments above about selling and then buying/reinvesting in the same name are true. However, there are some exceptions such as fully revocable living trusts and single-member limited liability companies (disregarded entities).

In your case, if you sell your Relinquished Property as an individual and then reinvest and acquire your Replacement Property in the name of your limited liability company, it would still qualify for 1031 Exchange treatment as long as you were the sole member of the limited liability company and it was considered a disregarded entity. You should discuss this with your legal and tax advisors to ensure that the entity is established as a disregarded entity.

The naming convention of the limited liability company does not matter as long as you are the sole member of the limited liability company and it is considered to be a disregarded entity.