Multiple Member LLC and 1031 Exchange

[Nold R.]

I have a multiple member LLC and the other members want to cash out on sale projected in Q2 2025 but I want the option to do a 1031.

What are my options? Im based in CA.

[Dave Foster]

@Jonathan Greene thanks for that shout out!  @Nold R.there are really three options for you to do this. Right now the LLC is the taxpayer for the property. The LLC has to do the 1031 exchange because that is the tax return reporting the activity of the property. The LLC owns the property not the members. They own an interest in an entity that owns real estate.

Option

1. Have the LLC do the exchange and buy out the membership interests of the other partners. The LLC will have to sell and buy as much real estate as it sold. You'll have to find a way to buy them out of their membership interests.

2. Have the LLC do the 1031 and buy several pieces of real estate (one for each member). Complete the exchange and then dissolve the LLC and distribute the properties to each former member. This is called a swap and drop 1031.

3. Immediately before closing the sale dissolve the LLC and distribute the property to the former members so they are all tenants in common. At this point each former member owns real estate. So they can do a 1031 only on their portion. Or they can take the cash and pay the tax.

Each of this has merits and drawbacks.  Your accountant might have a preference.

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