1031 Property LLC and additional members

6 Replies

Hello,

My question is two fold. From what I have been able to gather from your forum is: If I have a 1031 property in my name and have held the property for 1-2 years that I can transfer it to an LLC and that should not trigger a sale. The second part is what I need help on. So say I transfer that property to an LLC and six months later a couple of individuals want to become members of my LLC. Does that affect the 1031 property in any way? Thanks!

Note - please check with your CPA and QI. 

I would say it depends. Is the LLC a disregarded entity? Meaning, is it an entity that you own alone and you will be the only person paying taxes? Then yes, that is okay.

If it's an LLC with multiple tax payers, it can cause problems.

Others, if I’m missing something, or don’t have it just right, please correct me. 

Thanks for the response.  It would be a single member disregarded entity.  However, once the additional members are "let in" would that not require filing something different say a partnership return?  If so, does that jeopardize the deferred gain?  

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Hi @Clay Miller ,

You can transfer the property into an single member and disregarded LLC at anytime. However, if you are going to add members so that it becomes a partnership for tax purposes you should wait long enough to demonstrate that you intended to acquire the property and hold for rental or investment purposes in your name of the single member and disregarded entity. It is all about demonstrating that you sold and intended to reinvest under your individual name/tax return.

@Clay Miller, In addition to being able to demonstrate your intent the issue with a conversion from a SM llc to a MM llc is that you are changing the taxpayer so now the LLC will need to be the exchanger. All the members must go forward. The LLC will be doing the exchange. Not a problem. Just a nuance you'll want to plan for strategically.