Can I 1031 Into an LLC?

Question

Can I take a 1031 that is in the name of my wife and I, and then enter into an LLC partnership to takedown a property?

Dave Foster · Answer

@Seth McKinney, When you use the words "LLC partnership" it perhaps clouds the issues.

If you and your wife file a joint married return then for federal tax purposes  you are both the taxpayers for that property anyway - or rather the tax return that reports the property is the taxpayer.  So if the activity for that property is on your tax return then you are the tax payers.  She could sell and you could buy in an LLC that was a disregarded LLC being taxed as a sole proprietor as long as the LLC was not going to file a return and all activity would continue to be reported on your tax return.

@Lance Lvovsky, has a good idea about contributing the property into the LLC ahead of the exchange.  But I would only recommend doing that if you will not then be selling for several months to a year.  A change in title like that immediately ahead of a sale and 1031 is something that the IRS likes to challenge.  There is an answer to make but we have seen numerous exchanges like this that have been disallowed upon audit.  You're on much safer ground to complete the exchange and then quit claim into the LLC.

Lance Lvovsky · Answer

In a 1031, the taxpayer taking title to the property must be the same as the taxpayer relinquishing the property (with limited exceptions). If you have a property in the name of your wife and yourself owned, why don't you transfer title to the LLC (with your wife and you as members) and then initiate the 1031.

Seth McKinney · Answer

So what about after I find my replacement and purchase, can I reassign title to an LLC that is the same owners but has a different EIN? I'm just worried about future liability because the relinquished property is me and my wife's name...

Tom Gimer · Answer

Thank you, sir. This answers the exact question I was asked by a client the other day.

Can you point me to the code section or other resource that lists the exceptions?

Christopher Smith · Answer

You might try clarifying your question, the way its currently worded is somewhat ambiguous.

Can I 1031 Into an LLC?

Most Popular Reply