All Forum Posts by: Jeremy Lee

Understood - thanks for the info and feedback!

Thanks! So if the structure of the LLC is 50/50 'split ownership' where we own 50% and they own 50%, them placing the rental property in the LLC would mean that now they own 50% of it and we own 50%? Otherwise, the only way for them to retain full ownership of the propertyis to have it in an LLC where they are the only members?

Also, if we were to enter into the LLC as members (thus creating that 'split ownership' situation), would we be able to do a 1031 of the property at a later time (as soon as a year time frame where the property was renting for 12-13 months then we seek to do a 1031 on it immediately after). And if this is possible, can any members of the LLC claim this property as their primary residence at the same time?

EDIT: additional follow-up question but if we were in a 50/50 situation with the LLC and ownership, what would happen when we dissolve the LLC? Do we just retain that portion of ownership? Or would/could we have my parents reclaim it (and would that incur the action of making a gift)?

Hey all,

I was curious to know when opening an LLC for a rental property, what the stipulations are. Do the names that are on the deed/title of the property have to match what's on the LLC?

For instance, if my parents own a rental property that they want to put in an LLC, can the LLC only include themselves? Or could we be part of the LLC as well without having to be added to the title/deed of the property?

The situation would be that my parents own a rental property and we would be 'acting' as property managers for it, so profit wise, we would get a % of profit from the monthly rental income (also are there any restrictions within an LLC in this context as far as what that % can be?)

TIA! 

Here's another thought I'm wondering about as far as avoiding the 1031 conflicts on our part: what if we just quitclaim deed our interest in the current property so that it's fully in my parents' names? Then they can do whatever they want and then later could fold both properties into one and we would just rent from them (and or buy back additional interest in the property if we want to co-own later). The reason they want to do this is two-fold: 1) they're getting older and want to reduce the # of properties and tenants they would have to manage in the longer-term 2) if they have to have a tenant, they'd prefer it to be an easy arrangement: us living in one of their rental properties would fulfill this requirement. For all intents and purposes, if we could make this happen it would be a win-win I'm pretty sure.

Thanks Bill Brandt. I should clarify that the property we are living in as far as the co-ownership aspect is based on my parents rolling over a prior investment property that I think was $300-325k. The current property was purchased at $525k, so to supplement they put in some more of their own funds and then I put in the downpayment and have a small private loan taken to buy-back additional ownership (25%) in the property. It's fully a 1031 property as far as their interest in it is concerned but our 25% portion is not. If we were to currently sell this under this arrangement, they would be 1031ing their 75% interest and we our 25% interest would just be sold as non-1031 assets. But I think if we were to move out and rent elsewhere, then rent this place out, our 25% portion of interest in the property would then be considered rental and if we were to go to sell later and attempt to tax-defer the gain (though it would be minimal), it would still have to be considered a 1031 rollover.

How long do you have to rent out a 1031-exchanged property before you can convert it to a primary residence? I'm assuming people do this (e.g. when downsizing etc) but I'm just not familiar with the timelines.

Rephrasing the last part of the question in a different way: if the target replacement property (per the 1031 exchange) is still co-owned between my parents and I (let's assume it's a property purchased @ $900k and they own $400k of it from their 1031 proceeds and we own $500k from our 1031 proceeds), could we immediately make it our primary residence (after closing on it) and pay them fair market rent based on their % of ownership? Or would our $500k ownership interest be disqualified as a 1031 and we would then have to pay capital gains taxes on that amount?

Hey all,

We're facing another crossroads with what to do in terms of a 1031 exchange that my parents and I co-own (which I also live in with my wife and kids) with our current place and selling it in exchange for a place that's a little bigger. They have another property (in the Bay Area) that they are wanting to get rid of and had the idea of folding that into this 1031 exchange, however the heavily tenant-favored laws in the Bay Area are working against the current timeline and they either have to pull out of that idea or defer it. 

Currently we are leaning towards holding off on the 1031 exchange and just moving to the area we want to live in (South OC) and rent for a year. This would buy my parents time to figure out how to proceed with evicting the tenant up north (this could be a year long process anyway). This would also mean that we would seek to rent out the current co-owned property for about the same amount of time. My dad suggested that 1) we take all the rental income and 2) they transfer the deed/title to be solely in me and my wife's names. 

Can someone go over the caveats of both those suggestions? Can we really just collect the full rental income? Don't we technically need to "split" it based on ownership %? 

Also, another point of concern is if we 1031 exchange this property (regardless of whether they transfer deed/title or leave it as is) + my parents' other Bay Area property into a single property down down here. If we did that, would we be required to rent that new property out for a certain amount of time else risk disqualification of the 1031 exchange?

Hey all,

We are wanting to move to a different area of Orange County by year-end and are considering renting a place on a 6-12month lease. We currently co-own a condo with my parents and we occupy it - my parents are in Northern CA. We are wanting to sell the condo eventually but there are circumstances that are impacting that decision as far as doing it right now or ASAP. My question is, if we move out say in December 2019 or January 2020 and want to rent the condo, can we rent 'short-term' for less than a year (perhaps 6 months) or go month-to-month then sell the condo whenever we are ready? I'm not familiar with tenant rights in CA and am not currently a landlord so just looking for options. Or is this just not a good idea? I just don't want to get stuck or pigeon-holed to where we may end up with legal recourse because of some unforeseen issue.

TIA! 

The EA Just got back to me after looking into it... Beyond the ownership/use qualification issue, there could also be potential issues with recaptured depreciation as well as the gain incurred not only from the date we bought the current property but all the gain that would have been incurred from the date my parents purchased the original property they 1031ed (which they purchased for $121k). So hypothetically, even if we did qualify for use and ownership, if we were to sell at an estimated $600k we would be fast-approaching the $500k exclusion limit. 

Quick update: I asked a friend who specialized in commercial real estate, and she thinks what most here are thinking as well in that if they gifted the property to us, we would have to sit on it for at least another 2 years before selling if we wanted to avoid capital gains.

I'm also checking and inquiring with my CPA as well as an enrolled agent on this as well. Just wanted to see if anyone else has thoughts on the matter in the meantime.