1031 exchange need some advice.

[Alex Billips]

I'll try to keep this as short as possible. I purchased my first real estate investment property in October 2018, under a newly created single owner LLC. My intentions from the start was to purchase outright then rehab the house and rent it out, then eventually take out a refi mortgage to recover my cash investment.

I personally loaned all the funds for the purchase and the rehab to the LLC from my personal saving and noted it with each deposit made over a 5 month period.

Recently my son approached me and asked me if I would could sell him the house because he is now going through a Divorce and needs a home. I agreed to sell him the house and we have a closing date at the end of April 2019.

My question is can I roll only the gain from the sale into a 1031 deferred exchange and pull my loaned money out at the closing?

My attorney is telling me I need to roll all of the money from the sale into the 1031. I am not understanding why he is not looking at my loans to the company the same as if I had borrowed the money from a bank or a hard money lender. I am lien holder.

I don’t understand why I can’t just use a personal loan note at the closing for the amount I loaned to the company and receive the funds back at closing and then roll the gain into a 1031 exchange. All deposits and expenses are documented in the bank statement and check book.

If anyone has personal experience with a situation like this please respond with some advice. Thanks in advance.