1031 Exchange with a 50% Partner

[Carlos Rovira]

I'm currently selling a property that I hold a 50% equity stake in. This property is titled using an LLC. It is currently for sale and I would like to use the proceeds to purchase more property. Question is as follows: once we sell the property, is it possible to 1031 exchange only my 50% of the sale proceeds so that I can buy property for myself, without my partner?

[Bill Exeter]

Originally posted by @Carlos Rovira:

I'm currently selling a property that I hold a 50% equity stake in. This property is titled using an LLC. It is currently for sale and I would like to use the proceeds to purchase more property.

Question is as follows: once we sell the property, is it possible to 1031 exchange only my 50% of the sale proceeds so that I can buy property for myself, without my partner?

Hi Carlos,

Here is the challenge. A multiple member limited liability company is generally treated as a partnership for tax purposes, which is a separate legal entity. This means that you and your partner do not own real estate. You actually own a partnership interest in a partnership (LLC). The partnership (LLC) as an entity is the actual owner of the real estate.

The easiest (and safest) way to do a 1031 Exchange in this case is to stay together as a partnership (LLC) and have the LLC sell the relinquished property, complete the 1031 Exchange through the LLC, and buy your replacement property through the LLC.

However, there are numerous possible strategies that can be used when partners do not want to stay together and the LLC will be breaking up. Some of the strategies will have no or little risk, while others will involve greater risk. It will depend on what both of your goals and objectives (does he also want to 1031 Exchange, or just you) are and if you are both willing to cooperate and help each other.