1031 exchange from California to Pennsylvania

Investor · chesterbrook, PA · Member since 2017 · 2 posts · 0 votes

All I am looking todo a 1031 to sale a property in California that is currently in a joint living trust as seller (husband and wife ownership) of the relinquished property. I have created a single member LLC (husband only) ownership for the replacement property in Pennsylvania. Is this going to be an issue? if yes what options do I have, not sure if I can add her name to LLC or need a new LLC for her and be 50/50 or other options. Want to get the llc protection moving forward in PA. We file our taxes jointly.

Thanks in advance.

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Dave FosterBusiness Member

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

@Phil Yan, Your trust is a disregarded entity as long as it is a revocable living trust that does not file a tax return. So the tax payer which has to stay the same throughout the 1031 is you and your wife by virtue of the joint tax return you file.

Purchasing as a single member LLC is not a problem from the 1031 perspective either as long as the LLC is not being taxed as a partnership. Again, the LLC is disregarded and the tax payer is your joint return or you. However, it's always cleaner if even the deed is the same going through the 1031. It eliminates questions before they have to be answered. One answer would be to sell as the trust and buy as yourselves and then contribute the property into the LLC.

Community property issues can appear but for 1031 Pennsylvania doesn't recognize the 1031 for state tax purposes. So you'll really just want to make sure your staying OK with state laws regarding community property/equitable distribution or whatever hybrid PN happens to be.

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Frank Chin
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y
Problem is the seller in a 1031 exchange of the relinquished property has to be the exact same entity or owners as the buyer of the upleg property which does not appear to be the case here. See a previous discussion of it: 1031 discussion especially the link there to 1031 rules.
You would need a QI anyway to accomplish this, so I would check around with QI's you plan to use to nail this point down.
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
9y
I can recommend a local attorney Rich Heller who is quite the 1031 expert. You can tell him I suggested you contact him.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
@Phil Yan, Your trust is a disregarded entity as long as it is a revocable living trust that does not file a tax return. So the tax payer which has to stay the same throughout the 1031 is you and your wife by virtue of the joint tax return you file.
Purchasing as a single member LLC is not a problem from the 1031 perspective either as long as the LLC is not being taxed as a partnership. Again, the LLC is disregarded and the tax payer is your joint return or you. However, it's always cleaner if even the deed is the same going through the 1031. It eliminates questions before they have to be answered. One answer would be to sell as the trust and buy as yourselves and then contribute the property into the LLC.
Community property issues can appear but for 1031 Pennsylvania doesn't recognize the 1031 for state tax purposes. So you'll really just want to make sure your staying OK with state laws regarding community property/equitable distribution or whatever hybrid PN happens to be.
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Lauren SpeidelPro Member
Qualified Intermediary for 1031 Exchanges · Chicago, IL · Member since 2017 · 164 posts · 119 votes
9y
@Phil Yan If the trust is a disregarded entity, meaning it doesn't file its own tax return. Instead all income or expenses, gains or losses are filed on your personal tax return (which most likely you do). And as long as the single member LLC is also a disregarded entity, this transaction should be fine. I would always recommend speaking with your tax advisor since there can be many moving parts.
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Phil Yan
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Investor · chesterbrook, PA · Member since 2017 · 2 posts · 0 votes
9y
Let me clarified since this might be a difference, we have is a:
Tax Classification Pass-through Sole Proprietorship
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Chris K.
Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
9y
@Phil Yan
To add to what @Dave Foster wrote, note that Pennsylvania doesn't recognize community property. It instead uses Tenancy by the Entirety ("TBE"). Pennsylvania law has a strong presumption that everything you own everything that you acquire during your marriage as TBE. That creates various complications. For example, I've seen many married couples get in trouble because they moved from Pennsylvania to a state that recognizes community property. A classical example is when you move money from a bank account in PA to a bank account to a community property state. That gives a creditor an opportunity to potentially go seize the money in a way that they couldn't have done in PA.
Long story short, you will want to talk to a lawyer about what exactly you want to do when it comes to these issues.
For the 1031 exchange itself, I think Dave basically answered your question.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.
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Tax Classification	Pass-through Sole Proprietorship

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