Hello, I own a % of a family farm and would like to do a 1031 exchange with my proceeds once the farm has sold.  When the property is sold, it will be done in the family name and the proceeds will be distributed to each recipient.  How do I do a 1031 exchange since the property isn't in my business name?  The shares I hold are in my personal name.

Hi @Misty Wood , 

What type of entity is the "family name?"   You mention the shares are held in your personal name.  Is the family name a corporation?  

@Bill Exeter it is an family LLC.

@Misty Wood , I think we've been conversing. Sorry if my answers are crossing in cyber space :). My question was the same. Since this is a multi member family LLC it is a taxpaying entity of itself. In order to 1031 it is the LLC that would need to do the exchange and sell/1031/and buy the new property.

This isn't a huge issue even if everyone is wanting to go their own way. Because the LLC could sell, do a 1031, and purchase properties acceptable to each person (or hold cash for anyone who didn't want to get new real estate). After the 1031 is complete then the LLC could be dissolved and the properties (or cash) be distributed to the individuals.

the other alternative would be to dissolve the LLC ahead of the sale and distribute tenant in common shares to each member. Then whoever wants to can 1031 their share. And whoever wants cash can just do that.

Your accountant may prefer one of the other. The first format was preferred for a number of years. But some recent court rulings have indicated that the IRS is warming up to the "dissolve the LLC first" format.

It can work either way

Hi @Misty Wood , 

Limited liability companies with multiple members are generally filed and reported as a partnership for tax purposes.  This means that you likely receive a K-1 that reports the items that you need to report on your tax return. The sale of the family farm is being sold the partnership, so the distribution that you receive is just a cash distribution from the partnership and does not qualify for 1031 Exchange treatment.  

However, there may be options depending upon everyone's ability and willingness to cooperate with each other that are difficult to address through this post.  

Thank you both for the information you provided.  

@Dave Foster if it was left as is and nothing was done, are the recipients taxed on the proceeds like income or capital gains?  I sent you an email and would like to discuss services through your company.  Thanks

Hi @Misty Wood , 

Generally, the taxable items are reported on the K-1 and pass-thru to the underlying members of the LLC. The capital gain items should be passed through to you as a capital gain as long as it was owned for at least one year.