1031 Exchange Limitations With a LLC

[Troy Kalange]

Hi There!

I own a commercial building with 1 partner in OR. We are looking to sell, and I am hoping to 1031 my share of the sale but my partner is not. Currently we own the property through a shared, two member LLC.

In doing some online research I’ve read 1031 exchanging in this situation is limited due to the property being owned by the joint LLC.

My understanding is the only option here is for us to jointly 1031 into another property with the same LLC (I am unable to take my portion of the sale and 1031 myself because of the LLC).

Are there any other options here for me?

[Bob E.]

Would your exiting partner consider staying with the firm through the 1031 and then cashing out by selling their portion of the partnership?  I can imagine a few things that might work but check with your 1031 agent.

1)  Cash out refi after closing on the new property and use the cash to buy out your partner.  

2)  Buy out your partner with a not secured by the property.  You can schedule the timing of the payments and possibly annual lump sum payments to spread the income over multiple years and optimize their tax profile.

3) Find a new partner and have them buy out your current partner before doing the 1031

4) Do the 1031 and then bring in a new partner to buy out your current partner.

The real question is what does your current partner want from this exit, then build a solution that meets their needs.