Rental property to existing business

[Barry Woelfel]

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...

[Ryan Swan]

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.