1031: sold in my name. can new property by purchased by LLC?

3 Replies

I recently sold a rental property in my name and put the proceeds into a 1031 exchange in my name. I'm scheduled to close on a replacement property in a month and I'm wondering: 1. is it too late to form an LLC to purchase the replacement property? If not, what are the steps? 2. If it is too late, can I transfer the property to an LLC after closing on the replacement property? How soon after closing? 3. Should most real estate attorneys be able to answer these questions or do I need to find a specialist? My 1031 intermediary simply told me to talk to an attorney. Many thanks to anyone who can offer insight!

Hi @James Roane

It is not too late. The key is that you sold in your name, so the purchase of your new replacement property must be in a way that it is treated as if you bought the property for tax purposes. You can use a new LLC as long as you are the sole member, it is a single member LLC (SMLLC), and it is a disregarded entity. This means that it exists, but is ignored for tax purposes and you are treated as the real buyer for tax purposes.

You can acquire the replacement property in your own name and then later form a SMLLC/disregarded entity and convey legal title into the new SMLLC.  It will not hurt your 1031 Exchange as long as it is a disregarded entity, and you can do this immediately following the acquisition.