1031 Exchange to a LLC

[John Bartolillo]

My wife and I have a rental that is owned in our personal names. Is it possible to sell the property to one of our LLC's via a 1031 exchange?

[Jeff Copeland]

1. In order to complete a 1031 Exchange, the person/entity selling the initial property, and the person/entity buying the replacement properties must be exactly the same. If You and your wife own the original property in your personal names, then you must buy the replacement properties in your personal names. Your LLC has nothing to do with any of this. 

2. If you sell the original property, and then fail to close on one or all of the replacement properties (because of the timeline, or for any reason), then you pay capital gains tax on the sale (or on the portion of it not offset by the 1031). For example, if you sell a property for $200k, buy a replacement property for $100k, and fail to close on the second property - Your taxable gain would be $100k (minus the cost basis for the original property). Your LLC has nothing to do with any of this.

3. As already explained above, you cannot purchase property from yourself, or from a related entity, and complete a 1031 exchange. 

4. I highly recommend sitting down with a Qualified Intermediary such as @Dave Foster well in advance of selling the original property. Your QI needs to be involved from the beginning, and must hold the funds from the sale of the original property.