1031 Exchange Guidance

[Maresa Decena]

Hey BP Family!

I'm looking for some guidance on initiating a 1031 Exchange.
I purchased a SFH in NC under my LLC. I'd like to sell it and use the funds towards a vacation home in Northern California (the property has already been identified). I'd like to purchase the vacation property with a partner. My understanding is that w a 1031 Exchange, the new property must hold tile in the same way as the old property. In this case, that would have to be under my LLC? Someone please correct me if this information is wrong!

I'd like my partner to also be recognized as 1/2 owner in the new property. How does that work? Has anyone done something similar? Any lessons learned you can share? Who else was on your team throughout the process? Also, does anyone have experience with a reputable Qualified Intermediary or company who assists in situations like this?

Thanks in advance for your help!

[Jon Taylor]

@Maresa Decena -

There are a few pieces to this question: 

1) If the SFH in NC (property A) was an investment property, then you can use the 1031 to defer capital gains and depreciation-related taxes. You'll need to purchase property B (or your share of property B) at the same or greater net value as property A, using all of your proceeds. It does not matter that the property is in California. If you purchase multiple properties or a share of one property, the sum of all transaction values are taken into consideration.

2) Regarding, "My understanding is that w a 1031 Exchange, the new property must hold tile in the same way as the old property. In this case, that would have to be under my LLC?" The tax-paying *entity* that sells property A must purchase property B. If your LLC is a disregarded entity for tax purposes, then you personally are actually the tax-paying entity performing the transaction - choosing to wrap it in a disregarded entity is optional at this point.

3) In order to purchase or dispose of 1031 property fractionally, the umbrella entity must be a vehicle that permits this. The most common fractional ownership 1031 structures today are the Delaware Statutory Trust, or the joint Tenants in Common. *(The DST is not relevant to your situation). If you work with a real estate attorney to set up a TIC on property B, you'll unlock the ability to purchase (under yourself personally, or the LLC) a fractional percentage of that property with your 1031 funds. The TIC also allows partners to 1031 separately upon disposition.

@Dave Foster is an excellent resource and a recommendation for your Qualified Intermediary. I'd highly recommend you connect with him personally.