Sale of LLC Property in one state 1031 Exchange to another CPA's!

[Fausto Carosella]

Hello All,

My folks recently sold their last property and made the move to retirement here in Florida. Last year they sold their investment properties held in a Massachusetts LLC and purchased various properties in Florida through a 1031 Exchange.. so they had several properties in Florida Deeded to a Massachusetts LLC I was maintaining for them while they lived in Mass.. Fast forward to present: they now live in Florida with those properties still being held by a Massachusetts LLC and we want to move those properties into a Florida LLC. Originally my attorney's office advised me to open an LLC here in Florida with the same name and then once the 1031 exchange was completed we could simply Deed the property from the Massachusetts LLC to the Florida LLC. So I've opened a Florida LLC with the exact same name but have yet to apply for an EIN... so the entity simply exists. My question/concern is this: If I simply Deed (Quit-Claim Deed??)the property from a Mass LLC to a Florida LLC will that trigger a tax event? wouldn't it technically be a change of ownership? Essentially we're basically trying to relocate the company from one state to another. What's the best way to proceed?

Thanks!!

[Bill Exeter]

Hi @Fausto Carosella, 

There are a couple of ways to do it. You can "unregister" the Massachusetts LLC in MA and then register the Massachusetts LLC in Florida so it remains the same entity with the same EIN number, but is now a Florida LLC instead of a Massachusetts LLC. There is a term of doing that, but I'm drawing a complete blank at the moment. This is generally the best and safest because there is no change of ownership; only a change in the state in which the LLC is registered/filed. You would probably not have to record any deeds, and the taxpaying entity and EIN remains the same so there is really no change in ownership.

I assume that your parents are the sole members of both the Massachusetts and Florida LLCs.  I ask because LLCs that have the husband and wife as the sole members in a non-community property state like Massachusetts or Florida are usually treated as a partnership.  Your parents recently completed a 1031 Exchange, so deeding property from one "partnership" into another "partnership" might be risky if done too close to the completion of your 1031 Exchange.  

I would have your legal and tax advisor review any proposed solution before you proceed with anything. There are enough moving parts here that you could accidentally cause you further problems.