Quit claim property under my name to an LLC owned by both trust

Ana Shapiro

OP

Member since 2025 · 3 posts · 0 votes

Do you have a tax attorney recommendation? I have an attorney who is putting together the LLC and a CPA but they both recommended that I talk with a Tax Attorney. Thanks for the response.

Greg ScottPro Member

Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes

Do you have a mortgage?

People usually freak out about the due-on-sale clause, however, I've never heard of that really being a problem.

The bigger issue is one that most people don't talk about. If the mortgage is in your personal name but the property is owned by the LLC, have you pierced the corporate veil? Would your LLC survive a legal challenge?

Ana Shapiro

OP

Member since 2025 · 3 posts · 0 votes

Thanks for the response. No mortgage.

Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Ana Shapiro, Does the Delaware Trust file it's own tax return? If not then the next question is do you and your husband's trusts file their own tax return? If not then the Delaware trust is a disregarded entity.

You could quit claim the property into an LLC that is owned by the disregarded Delaware Trust with no issues. Generally contributions into and distributions from an LLC are not taxable events.

If you are keeping the tax payer same, as in the above example then there isn't a consideration with the 1031 exchange as the tax payer is actually staying the same even though the deeded owner is changing.

If the LLC will change the tax return reporting the property it is still fine to do. But your accountant might want some time to pass for the 1031 to show on a tax return before doing that. Or they may not. It's not a black and white thing.

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Clint CoonsBusiness Member

Real Estate Attorney · Tacoma, WA · Member since 2009 · 38 posts · 55 votes

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@Ana Shapiro What you are describing is not an uncommon scenario. Based on your description of the exchange, I am assuming for purposes of this response that you were the owner of the downleg property, which is why you are taking title on the upleg property. To maintain the 1031 qualification, there cannot be a change in ownership from a tax perspective. This means the same taxpayer who relinquishes the property must also acquire the replacement property. Transferring your property into a disregarded LLC, wherein you are the sole owner, is permissible under IRS guidelines (See PLR 200131014: The IRS ruled that transferring hotel replacement property to a single-member LLC did not violate the holding requirement under 1031). However, you mentioned that your Indiana LLC is owned by a Delaware LLC, which is in turn owned by your living trust. This adds additional layers of complexity.

The key question is whether your Delaware LLC is treated as a disregarded entity for federal tax purposes. If your Delaware LLC is treated as a partnership for tax purposes or, alternatively, if it is disregarded but owned by your living trust while you reside in a non-community property state, it could technically be classified as a partnership. Partnerships introduce issues for 1031 exchanges because they do not meet the "same taxpayer" rule. In this situation, you may need to consider restructuring how the LLC is titled within your living trust to ensure it qualifies as a disregarded LLC. This could involve retitling the LLC or even modifying the ownership structure to simplify compliance with 1031 exchange requirements.

One last, but critical, point: when transferring real estate into your Indiana LLC, do not use a quitclaim deed. Instead, use a warranty deed. A quitclaim deed can create future title issues because it does not provide the same guarantees as a warranty deed. Additionally, from an asset protection standpoint, using a quitclaim deed could make it easier for creditors to trace ownership back to you. If a creditor were to investigate ownership of the Delaware LLC and discovered the use of a quitclaim deed, it would be an obvious indication that you are ultimately the owner because a purchaser would never accept a quitclaim deed from a seller. For these reasons, using a warranty deed is a much safer and more reliable option for transferring title.

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Ryan RomingerBusiness Member

Real Estate Broker · Indianapolis, IN · Member since 2018 · 340 posts · 144 votes

[email protected]317-935-0075

Great question! The key is maintaining continuity of ownership to preserve your 1031 tax benefits. Typically, transferring to a single-member LLC (disregarded entity for tax purposes) won't trigger issues, but since your LLC is owned by another entity, it could be seen as a change in ownership. You might want to consult a tax advisor or 1031 specialist to ensure compliance, especially given the trust involvement. A common approach is to hold the property in your name until the safe-harbor period (often a year) passes before transferring.

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Fulton Abraham Sanchez

CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 96 votes

Ana, hi. Yeah, the LLC should be without any trust. It should be in the name of the person, otherwise the 1031 exchange will not work because if they are buying the property, the 1031 exchange should be in the name of the person, of the LLC, who is owned by a person, not by a trust, it will not work.

You've come to the right place for advisory, we are experienced CPAs active in these forums, many of whom specialize in assisting real estate investors like yourself, bringing comprehensive tax planning and strategies, providing valuable insights. Feel free to reach one.

Ashish AcharyaBusiness Member

CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes

[email protected]941-914-7779

@Ana Shapiro Since the property was acquired through a 1031 exchange, you must ensure the same taxpayer who completed the exchange retains ownership to avoid disqualifying the tax deferral.

Transferring to a Single-Member LLC (SMLLC) – If the LLC is wholly owned by you, the IRS treats it as a disregarded entity, meaning it won't impact your 1031 status.
Potential Issue with Your Husband's Trust – If your Delaware LLC is owned by both your trusts, adding your husband as an indirect owner could violate the "same taxpayer" rule, triggering a taxable event.
Safer Approach – Keep the SMLLC solely under your trust or wait at least a year before transferring to an entity with different ownership to avoid IRS scrutiny.

For liability protection without risking 1031 benefits, consult a real estate attorney or CPA to structure the transfer correctly.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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