Question: Can you take two different LLC names and do 1031?

Question

Here are the specifics. I have ownership with my wife and older son and his wife, all 25% each as members in two different properties. One is a 5 plex, Powell Properties Milton St, LLC and another 8 plex, Powell Properties 21st St, LLC.  With the state of Oregon we are all equal partners individually but the properties have different LLC names. Can we sell both of these and do a 1031 and move into a larger apartment building? We only did two specific LLC 's based on the address of each property because an accountant advised me to, but I am wondering if this will work?

Dave Foster · Answer

@Todd Powell, you've got two properties each owned by an LLC.  Each LLC is multi member so they probably file taxes as a partnership.  It doesn't matter the membership, each LLC owns a property.  Each LLC can also sell the property it owns and do a 1031 to buy a replacement property.

If you found a big enough replacement property then each LLC could sell and buy a % of the larger replacement as a tenant in common.

Example - each LLC owns a property that is worth $500K.  They could both sell and 1031 each into a 50% tenant in common interest of a property worth $1 mil.

Once the LLC's have completed their exchanges they could simply remain as tenants in common.  Or you would work with your accountant to dissolve one or both and leave the property in one LLC with the same membership interest allocation.

Richard Sherman · Answer

@Todd Powell    @Dave Foster is 100% correct in this.  Specifically the ways that you can exchange based on percentage or just the LLC selling and then buying.  Where it gets complex is combining properties with different ownership structures.

A good rule of thumb is the what needs to be the same is the end TAXPAYER, so for example, we just did a 1031 where 2 separate LLCs (Single-member and thus disregarded entities from a tax standpoint) both owned by the same parent LLC  sold (relinquished) properties and a 3rd and different Single Member LLC (also owned by the same parent LLC) bought the replacement property.   The end taxpayer (the parent LLC) was the same for all transactions, so even though there were three separate names on the deeds, no moving of deeds around had to happen.

Stanley Bronstein · Answer

@Todd Powell.  @Dave Foster is correct.  If I understand your situation correctly, you could structure a Tenancy In Common (TIC) deal where each of the separate LLCs owns an undivided interest in the replacement property, as tenants in common.

These deals need to be structured properly and you need to have an attorney familiar with 1031 exchanges involved to make sure it's done properly.

Also, if there is a lender involved, that can complicate the matter as well.

It's definitely doable, if you have the right professional help while you're doing it.

Feel free to write if you have any questions about this.

Dave Foster · Answer

Welcome to the deep end of the entity pool @Richard Sherman !  Well done.

Richard Sherman · Answer

@John Woodrich Good call out John, our structure is not a series LLC (at least not the way that people usually use the term) as each LLC is a separate LLC with its own EIM and operating agreement as opposed to what most people mean when they say Series LLC .  You are correct that only certain states allow them.

Citation- Wikipedia, so...possible clarification could be added, but this does a good job of summarizing what a SLLC is vs a prent Child LLC (or whatever you call what we did.)

"By forming a separate LLC to own and hold each legally titled separate property or business entity, theoretically only the assets owned by a specific LLC would be subject to claims or lawsuits arising against that LLC. However, there are costs and administrative burdens associated with properly forming, qualifying and maintaining each separate LLC.

Another option may be to form multiple series or "cells" if permitted under applicable laws. Although each cell of a Series LLC can own distinct assets, incur separate liabilities, and have different managers and members, a Series LLC may be able to pay a single set of annual state fees and may be able to file one income tax return each year. In addition to the administrative streamlining, the key value is that liability incurred by one unit does not cross over and jeopardize assets titled in or allocated to other subsidiary units of the same Series LLC."

John Woodrich · Answer

@John Leavelle not all states allow for series LLCs...

John Leavelle · Answer

Howdy @Todd Powell

@Dave Foster  @Richard Sherman

This is where structuring your entities in a Series LLC (Parent, Child, Child), as Richard did, as apposed to individual LLC becomes beneficial.  Suggest you go that route going forward.  Nice job Richard.

Todd Dexheimer · Answer

Can you quit claim one property into the other LLC? If you just have 1 LLC it would make life much easier for a 1031

Melanie P. · Answer

I love it when the asset "protection" folks get all pumped up and start talking about octopussies and series llc and legs and LLC three times in one sentence and parent/child and heads and legs.

NEWS FLASH: Real world liability issues are resolved by your insurance company. Spend more on insurance, less on LLCs.

In this case the LLC structure was a good suggestion with four owners in the enterprise. The issue was making a separate entity for each address. I know, I know... heads feet legs toes child octopus. Nobody needs two LLCs for 13 units. A couple million in general liability, which I bet you're carrying anyway on top of the LLC is all that is required.

The TIC solution is elegant and once the exchange is completed you can always merge the entities into one since the ownership is the same. Listing the properties as a portfolio should get you a sale of both together but if you get an offer on one ask the buyer to allow you to try individually marketing the other for 30 days.

John Woodrich · Answer

@Todd Powell you can definitely structure into one entity in Oregon but it would be better to direct the how question to a person who knows Oregon entities (I do not).  You could create one parent LLC (or holding company) and contribute the units of the two other partnerships but there may be an easier way.

As @Dave Foster and I mentioned above you could also complete the transaction you want through a TIC structure.  I don't really see any advantages to a TIC in the above situation though as you would still have equal ownership with each TIC member...  Suppose it may facilitate a drop and swap if you chose to do a partial exchange down the road but with common ownership probably unlikely.

Question: Can you take two different LLC names and do 1031?

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