1031 Eligible? Being added as member of an LLC & selling property

[Chris Mooney]

Hello all,

I'm in an unusual scenario and wanted to get some guidance from the BP community.

My fiance is being added as a member of an LLC that owns a residential and a commercial property, both of which are in the process of being sold.

Once the properties sell, she and her brother will likely dissolve the LLC and go their own ways with the proceeds of the sales. Ideally, we'd like to 1031 the proceeds into one or more multifamily properties, but don't know if we can, since one of the rules is that the same entity must own the property being sold and the new property being acquired.

We will find a QI and a CPA to talk this over with, but wanted to hear what some of you would say to this interesting scenario. 

Thanks in advance!

Chris

[Bill B.]

Is she paying to get 1/2 of 2 buildings sale value or is it a gift? I’m going to believe the IRS wouldn’t be happy about an ownership chang while the building is actually in the process of being sold. Hard to show investment intent when it’s already for sale. You’ll also have the “same taxpayer requirement” problem as I assume she hasn’t paid any income taxes on this property. 

So enough guessing. You’ll need to contact someone like @Dave Foster and see if you have a chance. If so, get him or another qualified QI in before the sale completes. But if she’s buying or being gifted these properties while they are for sale probably will make a difference.