Limited partnership to TIC - Can a child get joint property without capitol gains?

Question

Input needed for least tax methods of unwinding a family partnership in the next 13 years.

a. General Partner  is elderly  father

b.  12 Limited partners - all children ,  spouses not included - cheaper by the dozen

c. Average child owns 8% of partnership

d.  Approx 5 commercial  properties with total combined value book value 12m .. actual maybe 20-25m?

>  Some LP want cash

>  Some want  alternative real estate

>  Some want  individual properties currently  within  the partnership.

How can assets be moved  into a LP's name without triggering capitol gains?

A.  Is it possible to convert the family  partnership to tenant in common

B.   After its a tenant in common , is it possible for individual members  1031 into outside properties.

C.  How can a  individual existing  property  be moved out of partnership to a individual member without triggering capitol gains?

Dave Foster · Answer

@Kevin Hoover, with certain types of entities it is possible to contribute property to and distribute property from that entity without triggering a tax event.  This is the scenario you would want.  The mechanism would allow the property to be re-deeded to all of the LPs as tenants in common.  Once this is done then the property can be sold.  And each former LP (now a tenant in common) can do a 1031 exchange on their portion.  Or take cash and pay the tax on their portion.

Only your accountant will know whether this kind of drop and swap is possible without a tax event.  But it is definitely worth asking.

Kevin Hoover · Answer

Thank you Dave,Appreciate the input. So if it was switched to a TIC with 12 members, if they sold 1 property for 3 million would each of the 12 get a  250K allotment ?Or is it possible to assign all of a sale to 1 member who then exited the group?ThanksKevin

Kevin Hoover · Answer

"The value of the property and how it’s distributed relative to ownership stakes will determine whether it counts as a taxable event"That is what I was wondering about.

Dominic Mazzarella · Answer

This is a complicated situation with multiple layers to consider, so here’s my take based on your questions:

If you’re looking to move assets from the partnership into individual LP (Limited Partner) names while avoiding capital gains, you’ll need a strategy that complies with tax regulations. Converting the partnership into a Tenancy in Common (TIC) could work, but keep in mind this requires dissolving the partnership structure and redistributing ownership, which may have tax implications depending on how it’s handled. Consult with a tax advisor or attorney familiar with both partnership law and real estate to ensure compliance and minimize tax liability.

Once under a TIC structure, 1031 exchanges for individual members could allow them to reinvest proceeds from the sale of properties into new ones without triggering immediate capital gains taxes. However, everyone involved would need to meet the IRS requirements for a 1031 exchange.

Finally, regarding transferring an individual property from the partnership to a member directly, this could be tricky. The value of the property and how it’s distributed relative to ownership stakes will determine whether it counts as a taxable event, I believe(I’m not a CPA or attorney). Working with a CPA experienced in real estate transactions is essential here.

If I were you, I’d call some attorneys on Monday if this is something you’d like to move quickly on.