1031 Exchange with Title Transfer to LLC

[Marty Hofmann]

Question: We closed on a property in November 2018 fixed it up and rented it the couple that wants to buy it. They agreed to buy it once we crossed the 1 year mark so that we could roll capital gains out into a 1031 exchange. However, in January of 2019 we took the property out of our personal name and transferred it through warranty deed to our LLC. The county Clerk had us write "No consideration" on the warranty deed. Our question is: Can we sell this property in December 1st, 2019 (a year after we closed ) or do we need till January 2020 (a year after we transferred deed to LLC)? Thanks for the help.

[Dave Foster]

@Marty Hofmann, It truly is more about your intent rather than the longevity.  There are some old revenue rulings that seemed to indicate two years.  But follow up court rulings have stipulated the phrases - two years, two calendar years, and two tax years.  This still leaves a ton up to interpretation.  Almost everyone feels pretty OK with anything over a year.  There was even a silly mantra in our industry up until a few years ago - "one year and one day".  Not exactly true.  But a good guide.

The clincher here is probably that the IRS will never see your LLC> . If that LLC is a disregarded entity (it doesn't file a tax return) then all the activity of the property is reported on your personal tax return still. So you have not changed the taxpayer and that should not affect your intent or reporting of the property and ability to 1031. Deeding is a state issue. The IRS looks to the tax return the property is reported on.