Can my LLC 1031 into a property owned by my other LLC?

[Christopher Louden]

I have a property owned by a member-managed LLC in Hawaii. Can it be 1031 exchanged into a like-kind property in Washington state owned by an LLC where I am also a member-manager? (Why you ask? Washington State has no personal income taxes and the gain on the Washington property, would be less than the Hawaii property).

[Dave Foster]

@Christopher Louden this strategy would be fine as long as the (taxpayer) is the same. The taxpayer is defined as the tax return that reports the activity of the property. If the HI property does not file its own tax return, then the activity of the property is reported on your personal return. If the WA LLC is set up the same way (it is what is called a disregarded entity). Then the new property will also be reported on your personal tax return. So the taxpayer isn't changing. As long as the taxpayer remains the same for the investment property being sold and the one being purchased, you can satisfy your 1031 exchange.

Even if you decide to sell as your single-member LLC and purchase your replacement property in your personal name, that would still be fine because you are ultimately the same taxpayer for both. If it were a multi-member LLC, then the LLC would be the taxpayer and have to take title to the replacement property.

The IRS's main concern is who would be reporting the 1031 exchange. Your accountant will file the 8824 form, which reports your exchange on the appropriate tax return.

Your strategy is very sound. You just need to make sure the taxpayer stays the same, and you'll get out of the state taxes from HI. When you later sell.