Is it possible to 1031 from personal to partnership?

Question

Hi all,

Is it possible to do a 1031 exchange of a personally owned property and move it into a property owned by an LLC as part of a partnership? In reading other 1031 questions regarding LLCs, I see some drawbacks but am curious if this is possible. Is one option to complete the 1031 outside of the LLC and then convert the property over to part of the LLC?

This question is stemming from trying to find greater balance within the partnership in terms of capital committed. My wife and I have a lot of equity in one property but are less liquid than our partner, so curious on our options here.

Thank you in advance for the insights!

Dave Foster · Answer

@James Likis, when you do a 1031 exchange you must take title to at least as much real estate as you sold - and in the same name as your old property. Purchasing a % of a partnership would not work because you are not buying real estate. You are buying a membership interest in an entity that owns real estate (the LLC).

The exception that would work however, if you purchased an actual % of the real estate from the LLC. So that you became a tenant in common with the LLC. The LLC owns a % of the real estate. And you own a % of the real estate. When done this way you are selling real estate and you are buying actual real estate. And you are taking title as the same tax payer that sold the old property.

James Likis · Answer

@Dave Foster thank you for the breakdown, that makes complete sense. Appreciate you educating me on these nuances!

Is it possible to 1031 from personal to partnership?

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