Rental property to existing business

3 Replies

Is an exchange from a residential rental to an existing business allowed under the Starker rules? I own a rental property in Scottsdale that I would like to sell, I exchanged into it three years ago. I’d like to continue the deferment by doing another 1031 exchange. With the real estate market what it is today, I feel like I could better maximize my investment by exchanging into a business verses another residential or commercial piece of real estate. Is this allowed? I believe I know the answer but would like confirmation from those of you in the business who would be kind of enough to give me your feed back on...

Hey @Barry Woelfel what do you mean by an "existing business"? Are you referring to say, ownership shares of an LLC that owns and operates a plumbing company? In that case, I believe the answer would be no. You can't 1031 exchange real property for ownership shares of a business. However, you could 1031 into ownership of a commercial building that has a NNN business as its tenant (like a McDonalds). In that case you own the building, but not the business.

I'm a Realtor based out of Scottsdale and help investors buy/sell investment property around the Valley, including 1031 exchanges. Drop me a line if you'd like to chat about your rental property, and some possible exit strategies going forward. 

@Barry Woelfel , Your exchange could be for the land/building portion of an existing business only.  1031 is real estate for real estate.  Up until 1/1/18 you could also exchange business assets for business assets under some very strict guidelines.  But now only real property is available for 1031 treatment.   

But if there was a going concern business that you wanted to purchase that consisted of both land/building and other assets you could 1031 your investment real estate into the land/building allocation for that business.

Thank you both for your responses.  You confirmed my assumptions.  Buying an exsisting excavation company, for example, would be possible but could only exchange my property for property already a part of the business I’m purchasing.  Makes sense and I will have to show that said property to be purchased is equal or more than my exsisting property.  Perfect..  thank you both again.

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