Multiple LLC 1031 Exchange

6 Replies

I currently have a rental portfolio with 25 SFHs in 1 LLC. Next I plan to purchase more property but will put it in a different LLC so that all my assets are not in 1 basket to reduce risk. Down the line when I want to exchange up using a 1031 exchange, are you limited to only using assets in 1 LLC or can you sell off multiple assets in multiple LLCs to try to purchase a much larger property?

@Travis Headley , It can be done. It becomes really a game of fitting puzzle pieces. If you sell one property from one LLC and one from another then the LLCs could end up as tenants in common on your replacement property. If your LLCs are disregarded entities it's not an issue at all. But yes, in general there's ways to combine multiple 1031s from multiple entities into the same replacement properties.

@Dave Foster

Thank you for the reply. I guess that would be the issue is getting multiple separate transactions closed at the same time within the window to purchase a replacement could be tricky.

My plan in the long run is to scale, so I am trying to figure out the best way to do so without it taking a really long time.

Hi @Travis Headley

I thought I would jump in here and elaborate a little bit. I'm assuming that the current LLC and the new LLC would both be single member LLCs owned by you and that they would be considered disregarded entities for income tax purposes (the disregarded status is essential). If this assumption is correct, then the real "owner" of the properties for income tax purposes is really you as an individual.

This means that your 1031 Exchange would be set-up under your individual name as the taxpayer/exchangor with language like "who will relinquish title as LLC 1." This way you can easily include as many relinquished properties from both/either LLC in one 1031 Exchange as you wish.

The more properties involved in one 1031 Exchange the more complicated it gets, of course.  When there are multiple relinquished properties in one 1031 Exchange the first closing will trigger your 45 calendar day identification deadline and your 180 calendar day exchange deadline.  

@Mark H. Porter You would not have to worry about recording a quit claim deed if all of the comments above are true.  If the comments above are not true, then you need to be careful in doing a quit claim deed.  If the entities are not disregarded, they could be partnerships and a quit claim deed would be transferring the property into another partnership, which would likely pose problems for the 1031 Exchange. 

@Bill Exeter Bill , I meant that the properties to be sold be quit claimed into an LLC that would also be used afterwards. In Other words, put he properties into the LLC, before the sale, that you want to exist afterward.

Hi @Mark H. Porter

I understood what you meant. Changing the owner just prior to sale is fine if both LLCs are single member LLCs and disregarded entities owned by the same person. I was just warning readers that if either LLC is not a SMLLC and a disregarded entity changing the LLC could create problems for the 1031 Exchange.

LLCs that are not SMLLCs and disregarded entities are generally treated as partnerships for income tax purposes. Transferring property between one LLC (partnership) and another LLC (partnership) means that you now have a completely new (different) ownership of the property and would likely need to season the new ownership before completing any type of sale/1031 Exchange. The new entity (LLC/partnership) must be able to demonstrate that it intends to hold the properties for rental, investment or business use. An immediate sale and 1031 Exchange would be problematic.