If I sell my relinquish property under my name and I do a 1031 Exchange also under my name, can I change my 1031 name into a LLC without a penalty? Should I put my requish property under LLC before I do a 1031?
It needs to be the same Person/ LLC on both sides.
If your sell from your name you must buy new in your name.
That is what I thought, but I just wanted to make sure. Thank you for your response!
@Thomas Schiulaz , any kind of transfer right before a sale and 1031 is always looked at suspiciously by the Service. However, you may be able to do what you're thinking depending on the nature of the LLC.
You can change the deed on a property but you cannot change the taxpayer. If the deed is in your name the property is probably reported on your personal 1040 Schedule E. That makes you (or rather the tax return that reports it) the taxpayer.
If you are contemplating taking title to your new property as a single member LLC that will be taxed as a sole proprietor then you might be able to. that "disregarded" LLC does not file it's own tax return. Rather the activity is still reported on your personal 1040 Schedule E. So you remain the taxpayer even though the deed changes.
It would also be OK to do a complete 1031 and sell as yourself and buy as yourself. and after the fact contribute the property into a new LLC. Work with your accountant on that to set it up correctly.
@Thomas Schiulaz,Well, you can certainly do it without being penalized. However, there are a few things that you must keep in mind when changing the ownership of your replacement property.
- You must keep using the replacement property for investment or business purposes. Otherwise, the IRS can question your intent behind the exchange.
- Hold the replacement property under your name for a substantial period of time. Let the dust settle and then you can change the ownership of the replacement property without any issue.
You don't need to put your relinquished property into the LLC prior to your 1031 exchange. Instead, you can simply transfer the property title in the LLC's name later.
By my understanding I could sell the property from one single member LLC and with a 1031 purchase it with a different single member LLC then correct? I want to limit the amount of property the first LLC owns. I would be selling up to 9 units and purchasing 31 units if it all works out.
@Cinnamon Harley , What you're talking about is probably best done with an amended return and the contribution into the new LLC. If those LLCs are single member LLCs that choose to be taxed as a sole proprietor then they don't file tax returns of their own. So selling from one to another and trying to 1031 wouldn't work. The IRS sees both as the same tax payer - you (or rather your personal tax return).
Deed on the property doesnt' determine the tax payer. You could put all of your properties into individual single member LLCs all owned by the first LLC and that wouldn't change your tax return a bit. But you'd now have properties all in different LLCs all still reported on the first LLCs tax return.
I don't think you need a 1031. Your accountant can do it easily enough without the 1031.
I would be selling 9 units to a completely different person then using that money to purchase new 31 units. Instead if returning those 31 to the original LLC I'd like to put them in a new LLC. Yes they're both single member.
@Cinnamon Harley Ah that makes more sense. Yes then you could sell as one disregarded LLC, and 1031 and take title as a different disregarded LLC. Just make sure on their tax status. Because a single member LLC can still be regarded as a different tax payer if it chooses to be taxed as a partnership or S corp. If it doesn't file it's own tax return its disregarded.
Thank you very much. No there isn't a seperate return filed for either one, included on the schedule E
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