1031 Exchange - Individually owned property to dual owned LLC?

[Nick Lopezzo]

Hi - hoping to get some guidance on if/how to best structure a 1031 exchange in this situation...before we were married, my wife bought a rental property that is in her name and for a few reasons we are interested in selling it and re-investing the proceeds into a rental property with better free cash flow potential. 

We'd like to leverage the tax benefits of a 1031 exchange, but have the new property we purchase be done through an LLC that we both own. Thanks in advance for any and all advice here.

[Bill Exeter]

Hi @Nick Lopezzo, 

It can be possible as long as the limited liability company ("LLC") is considered a single member LLC and a disregarded entity. LLCs that are owned by both a husband and wife are still considered a single member LLC and a disregarded entity for income tax purposes as long as you live/reside in a community property state, otherwise the LLC is likely treated as a partnership and what you propose would not qualify.

You can certainly acquire the replacement property as tenants-in-common with your wife as @Jonathan Barr suggested if you live in a non-community property state where the LLC would be treated as a partnership. You should absolutely check with your tax advisor to ensure that all of the above works (or doesn't work) for you.