Tax Considerations for Limited Partnership w/ Seller

[Nick Gray]

I am in talks with a multi-family owner who would like to sell me his property, but stay on as a 20% owner as I re-position it over a 2-year period. This raises some tax questions for me. This property is in New Hampshire, is owned in an LLC, and has been fully depreciated after almost 40 years without changing hands.

In New Hampshire, there is a 1.50% transfer tax split 50-50 by buyer and seller that is charged to all sales of real estate. If I buy the property from a newly created LLC in which I was an 80% owner and the seller was an 20% owner, we would be subject to this tax without question. However, I am wondering whether we avoid the transfer tax if I simply buy an 80% stake in the LLC that already owns the property. Is that the case?

If I do purchase an 80% stake in the currently existing LLC, is the 27.5 year depreciation schedule reset for both myself and the seller?

Whether a new LLC is created or not, how is the seller's capital gain treated? He is reaping a large capital gain after ~40 years of ownership and then re-investing about 10% of it back into the property. Are those re-invested funds eligible for a 1031 exchange?