1031 Exchange/LLC/Quit Claim Deed

[Peter Padalino]

I own a nicely appreciated SFR in AZ and am planning on selling once my current tenant's lease expires. My thoughts are to 1031 the gains into a replacement property. Here's the issue - the soon to be relinquished property is one of our first rentals and was purchased and is still titled in our personal names. For the replacement property, we'll need a loan and would like to use a non-bank lender, but most, if not all, require the new purchase to be in done in an entity. So it seems like getting the original property into an LLC asap, via a quit claim might be the best option - so that we can properly do the 1031 (like to like title).

Anyone have any thoughts?

Thanks!

[Dave Foster]

@Peter Padalino, or hire a QI who works weekends :)  Your guy should tell you that you don't need to quit claim anything.  That will actually raise more red flags then it avoids.

Simply create a single member LLC ( you or spouse) that chooses to be taxed as a sole proprietor. This LLC will be a disregarded entity since all activity of the property will still be on your personal tax return. Since CO is not a community property state your lender may want both of you on deed. You can set up two single member LLCs that will take title as tenants in common. So you sell as yourselves and buy as the two LLCs. This doesn't change the tax payer but will satisfy your lender.

An LLC with both you and your wife as members has to be treated as a partnership in non-community property states. So if you do that prior to the sale and quit claim the property to it you will be changing the tax payer.