Partial 1031 Exchange with a property held in 50/50 S-Corp
My mother owns 50% of a rental property with her brother (my uncle). They inherited the property in the 1980’s. At that time they formed an S-Corp to hold the property where they are 50%-50% shareholders.
They received an offer of $6.6 million for the property. They have a very small loan (<100k) on it. Based on the value when they inherited it 30 years ago and now, if they sell they will be hit with a very large capital gains tax bill (approx.. $1 million each). My uncle wants to cash out and pay the taxes. My mom wants to 1031 exchange her half into like/kind rental property. Based on my research this can’t be done, it is either both partners in the S-Corp or none.
My mom and uncle are willing to stop the current sale. They want to form a new entity to hold the property in which it will allow for a future sale of the property where my mom can 1031 exchange her portion and my uncle can cash out.
Is this possible? If so, what entity should they put the property into? Is there a time period they should wait before trying to sell the property in the future to avoid any look-back period for the I.R.S.?
Any help would be greatly appreciated, Thanks...