Selling my llc property and purchase my primary home

Elmhurst, NY · Member since 2015 · 1 post · 0 votes

Hi gurus, long time lurker and first time poster.

I am considering selling my llc owned (40 percent ownership) rental property, and use fund to purchase my primary house in order minimize tax triggered on profit of the rental property. Does this approach work? Any better solution I could defer tax generated by selling my rental?

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Brandon Hall

CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes

11y

@Andy Mei What you are describing is a 1031 Exchange and it is an excellent way to defer capital gains on an investment property. However, the new property that you are rolling your gains into must have a business use.

According to the IRS code: "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."

@Bill Exeter will be able to tell you more.

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Aaron Wyssmann
Springfield, MO · Member since 2014 · 252 posts · 117 votes
11y
You would need to consult a CPA in your area to know for sure but i believe if you have any gain when you sell your interest in the property you will be taxed. The only way is if the same LLC would purchase a new property through a 1031 exchange.
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Brandon Hall
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
11y
@Andy Mei What you are describing is a 1031 Exchange and it is an excellent way to defer capital gains on an investment property. However, the new property that you are rolling your gains into must have a business use.
According to the IRS code: "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."
@Bill Exeter will be able to tell you more.
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Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
11y
Hi Andy,
The sale of rental property will trigger a taxable event via the recognition of gain or loss on the sale. You can defer the payment of any taxes on a gain by structuring a 1031 Exchange, but this would require that you buy replacement property that is also to be held as rental property. You could not treat the new property as your primary residence; you must have the intent to hold. You could acquire the replacement property and then hold for rental purposes for a number of years and then convert it to your primary residence. I would recommend holding as a rental property for at least 24 months, but there is no black and white answer here. It all boils down to your intent.
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