1031 Proceeds from Sale of LLC into apartment building

[Leslie Schwab]

Hello BP, I own 4 rental condos in a single member LLC and I'm interested in selling all the properties to an investor and 1031 exchanging the gain into a building I have under contract (to be held in a new LLC where I own 50%).

In order to be able to rent the condos, the investor needs to purchase the LLC itself that holds the properties.

How can I structure this so that I can do a 1031?

[Dave Foster]

@Leslie Schwab, it's not quite as clean as I usually like it but you've got a case.  Here's some thoughts for you to ponder over with your legal team.  

1. Purchasing the membership interest in a single member llc that only owns one property has always been seen to be the same bundle of rights as purchasing the property itself. Unfortunately your LLC is multiple property.

2. An LLC that is single member and chooses to file taxes as a sole proprietor and does not file it's own tax return is "disregarded" by the IRS and the tax return where the properties are reported is seen as the tax payer. In this case that would make you the taxpayer. Unfortunately though you really aren't selling the properties though you're selling the LLC interest even though the LLC is disregarded. Hmmmm

3. We can always take several properties that are under one contract to one buyer and treat it as one exchange.  

You kind of have to read between the lines of all three of the above to arrive at a possible conclusion.

So I think (if your legal team agreed) that you, as the real taxpayer for a disregarded multiple property LLC are selling several properties deeded to the LLC as one exchange to a buyer and starting one 1031 exchange. and rather than deeding each property separately you are transferring the interest of the LLC because you are treating the multiple properties as one

Not quite the norm.  But I like it.