1031 and buying property for small business

[Brian Leong]

Hi all, 

Long time lurker and first time poster. If this isn't the right place, feel free to move it.

I purchased a rental property many years ago and have been filing taxes under my personal income since I never put it into a LLC. I also have a small business that I run, which is a single member LLC. I'm considering selling my rental property to buy property for my small business to operate out of and utilize a 1031. I have a few questions:

First question, is this allowed?

Second question, if I do this, should I form a LLC for the new property to rent to my business or can I just use the property for my business as is?

Third question, if I don't form a LLC, tax filing wise, would I include the write offs for the property under my individual income, or as part of my small business?

sorry if this has been answered before. I've been searching for a while and couldn't find anything.

[Dave Foster]

@Brian Leong, That is actually a great use of the 1031.  Property that qualifies is any investment property you intend to use productively for investment.  A property housing your business would be perfectly fine.

The question of ownership might not be such an issue. The property is in your name and reported on your personal return. That makes you the tax payer for the property. And your business is a SMLLC. If that LLC has chosen to be taxed as a sole proprietor then it too is reported on your personal return - schedule C probably. That again makes you the tax payer for the business. Or really what is happening is that your tax return is the tax payer for both the LLC and the property.

In a 1031 the taxpayer for the old property must be the same as the taxpayer for the new property. So selling as yourself and buying as that LLC or yourself would be permissable as the LLC is a disregarded entity. Much is going to depend on what your accountant prefers as to the other tax impacts of owning in your LLC.

But either way works if that LLC is disregarded. You can own it as yourself and simply let the LLC use it. Or the LLC can own it. If the LLC is a regarded entity then you would have to take title to the new property in your name. But that then leaves open a bunch of options on how you treat it relationally with your LLC - whether you rent it to the LLC or what have you.

And