To 1031 or Not to 1031 - Offset Capital Gains

[Daniel Trzaskos]

So.. odd situation that I'm having trouble getting a solid answer to. Partner and I bought a MF property via LLC which now under contract. Partner does not want to go the 1031 route and is ok with the capital gains hit (approx 23k) and believes he can offset the gains with losses on other properties he owns. I want to go the 1031 route as I don't want to pay the 23k. I've been working with a firm on the 1031 side and they suggest dissolving LLC and moving the deed into our individual names prior to close. Then my proceeds go to the 1031 firm and I'm supposedly good to go. My CPA isn't so sure and hasn't come across this scenario prior and I'm having trouble getting an answer. Anyone come across this before? Alternatively can I not go the 1031 route and buy a distressed property and have my losses there offset the 23k? Much appreciated.

[Ashish Acharya]

Originally posted by @Daniel Trzaskos:

So.. odd situation that I'm having trouble getting a solid answer to. Partner and I bought a MF property via LLC which now under contract. Partner does not want to go the 1031 route and is ok with the capital gains hit (approx 23k) and believes he can offset the gains with losses on other properties he owns. I want to go the 1031 route as I don't want to pay the 23k. I've been working with a firm on the 1031 side and they suggest dissolving LLC and moving the deed into our individual names prior to close. Then my proceeds go to the 1031 firm and I'm supposedly good to go. My CPA isn't so sure and hasn't come across this scenario prior and I'm having trouble getting an answer. Anyone come across this before? Alternatively can I not go the 1031 route and buy a distressed property and have my losses there offset the 23k? Much appreciated.

Yes, partnership cannot do 1031 exchange just for your portion of ownership. Partnership is not buying the property itself. In this care, your partnership is not the taxpayers that is doing the 1031 exchange, you are. 

You need to drop/dissolve the partnership, then do the 1031 only to the portion of your ownership. You can hold the title as TIC and start the process. @Dave Foster can help.