Selling/Buying a House Under LLC Using 1031

[Soh Tanaka]

Hello All,

I am considering selling a property that is owned by LLC (IL LLC), and buy another one in another state. The problem is, I don't want that particular LLC to buy a property in another state. But my understanding is if IL LLC sells a house, I have to use the same entity (IL LLC) to buy another one, which I don't want to.

My solution to this is to dissolve the LLC and transfer the deed to myself before selling the property, sell the house and buy another one in another state.  

Do you see any issue with this?

Thanks!

[Dave Foster]

@Soh Tanaka, A change of ownership (taxpayer) is not an exchange. When the seller benefits financially from gain the IRS expects to receive tax.

The purpose of the 1031 is to allow a tax payer to change properties without having to pay tax with dollars they may not have.  Originally it was designed as a stimulus for  cash strapped farmers or owners of significant large assets but no cash to exchange for other farmland etc without having to pay tax on the process for which there was no cash being generated.  

Allowing the taxpayer to change in between the sale and purchase opens the door for all kinds of shenanigans that, while beneficial to the tax payer do not fulfill the purpose of 1031 and deprive the iRS of their pound of flesh.

Bottom line - They have nuclear weapons and a standing army!

But regarding your LLC. You purchased it in your name and conveyed it to an LLC of which you and your wife are the sole members. If that LLC does not file it's own tax return and if you and your wife file a joint tax return then you and your wife (or more accurately the SSN that your tax return is filed under) is the tax payer. The activity of the property is reported on your Schedule E. And you can sell as the LLC an buy as yourself. Verify with your accountant.