1031 Exchange when have plan to close the LLC

Investor · Nashville, TN · Member since 2016 · 17 posts · 1 vote

Hello - I'm new to posting to BiggerPockets, so please let me know if this should be posted to a different area.

We moved to TN, and have decided to close our LLC in Michigan. The last property under the Mi LLC will be sold in 10 days. We would like to do a 1031 exchange. But, what are the ramifications to consider if we eventually plan to close the Mi LLC? Specially, we will get a commercial loan for the new purchase in TN.

Thanks for any suggestions!

0 Reply

9 views

Most Popular Reply

Frank Chin

Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes

Generally speaking the seller and buyer have to be the same entity. See: 1031 Rules

However, as mentioned, you have to be especially careful with disregard entities and how you file the tax returns. You mentioned "we" and it seems a spouse is involved, so it is not owned by a single person, though in some cases married people is considered a single entity, such as in lawsuits involving piercing the corporate veil.

To play it safe, suggest you keep the old entity until the 1031 is completed, unless you have this entity issued completely resolved by experts.

1 Reply

See this reply in the discussion

4 Replies

Jump to latestLatest

Sort by

Frank Chin
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y
Generally speaking the seller and buyer have to be the same entity. See: 1031 Rules
However, as mentioned, you have to be especially careful with disregard entities and how you file the tax returns. You mentioned "we" and it seems a spouse is involved, so it is not owned by a single person, though in some cases married people is considered a single entity, such as in lawsuits involving piercing the corporate veil.
To play it safe, suggest you keep the old entity until the 1031 is completed, unless you have this entity issued completely resolved by experts.
1 Reply
Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
@Adam Binder, @Frank Chin's exactly. The MI LLC is the tax payer for the old property. It will need to be the tax payer initially for the new property. Once you have completed your exchange it is perfectly fine to adjust holdings and entities to reflect new situation. Talk to your lender ahead of time to look at a simple substitution of borrower and then work with your accountant to close the LLC, distribute the asset and then contribute into a new entity.
It is also possible that your LLC, if it is a single member that is not taxed as a partnership, is a disregarded entity and as such you yourself (or you and your spouse) are the tax payer. In that case you actually have more options.
There are several ways to address this to still make your 1031 work.
The 1031 Investor5137 Reviews
Website View Page
0 Reply
Adam Binder
OP
Investor · Nashville, TN · Member since 2016 · 17 posts · 1 vote
9y
@Frank Chin, great catch on "we". It is a PLLC with my spouse. For tax purpose, we've been filing as PLLC (which is an added cost that we didn't know...rookie mistake).
@Dave Foster, thanks for the advice on lender notification! we do plan to complete the exchange under the old MI LLC. Just need to look ahead on the implications in the future. Any common practice on how long to keep the new property under MI LLC before adjusting holdings?
0 Reply
Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
@Adam Binder, There's no statutory guidance. If the members structure and capitalization stay the same there's probably no problem with immediately since that is easy to show intent, chain of ownership and consistent taxpayer in substance.
Have you also just thought of domesticating the MI LLC to TN? That way the federal TIN stays the same and only the state of registration changes.
Your TN legal with have good counsel. 1031 will work either way.
The 1031 Investor5137 Reviews
Website View Page
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.