1031 & Then Deed Over to a New LLC

Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes

Question for any 1031 experts out there (cc: @Dave Foster).

I'm looking to sell a free & clear property and want to do a 1031 with the proceeds. Would it be prohibited for me to purchase the replacement property and then deed it over to a new LLC after I purchase?

I believe the selling LLC and the buying LLC has to be the same. Curious how long I'd have to wait until putting into a different LLC.

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Will Gaston, Waiting until after the 1031 is complete and then contributing the property into a new LLC in exchange for membership interest is probably OK. Your accountant will want to direct that so it is an exchange for interest in your capital account and not a deemed sale.

But you could also sell as yourself and buy as a new LLC as long as the LLC is a disregarded entity. This means that then new LLC is a single member LLC and has elected to be taxed as a sole proprietor. This means it does not file a tax return and all activity of the property is actually on your personal tax return. So you are the tax payer. You could sell as yourself and buy as yourself or as a disregarded LLC.

Now here's where it gets fun - If your property is owned now by an LLC that is itself a disregarded entity (doesn't file a tax return and activity on your personal tax return). Then you could sell as that LLC and buy as a new LLC that is also a disregarded entity to you. Or if your current LLC does file it's own tax return you could sell as the old LLC and buy as a new LLC that is disregarded to your old LLC.

It's a huge game of musical chairs with so much potential and pitfalls. General answer is yes. Specific answer is - get good QI and acountant counsel on this.

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
4y
@Will Gaston, Waiting until after the 1031 is complete and then contributing the property into a new LLC in exchange for membership interest is probably OK. Your accountant will want to direct that so it is an exchange for interest in your capital account and not a deemed sale.
But you could also sell as yourself and buy as a new LLC as long as the LLC is a disregarded entity. This means that then new LLC is a single member LLC and has elected to be taxed as a sole proprietor. This means it does not file a tax return and all activity of the property is actually on your personal tax return. So you are the tax payer. You could sell as yourself and buy as yourself or as a disregarded LLC.
Now here's where it gets fun - If your property is owned now by an LLC that is itself a disregarded entity (doesn't file a tax return and activity on your personal tax return). Then you could sell as that LLC and buy as a new LLC that is also a disregarded entity to you. Or if your current LLC does file it's own tax return you could sell as the old LLC and buy as a new LLC that is disregarded to your old LLC.
It's a huge game of musical chairs with so much potential and pitfalls. General answer is yes. Specific answer is - get good QI and acountant counsel on this.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
4y
Originally posted by @Dave Foster:
@Will Gaston,
But you could sell as yourself and buy as a new LLC as long as the LLC is a disregarded entity. This means that then new LLC is a single member LLC and has elected to be taxed as a sole proprietor.

Just to add to Dave's excellent advice, spouses in a community property state that are the only members of the LLC are still viewed as a SMLLC and disregarded👍
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Will GastonPro Member
OP
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
4y
Thanks @Dave Foster @Steve Vaughan!
FYI the LLC that I'd be selling from is a single member LLC and a pass through on my returns. The new LLC would also be a single member LLC & a pass through on my returns.
You think I'd be okay to purchase straight w/ a new LLC? Obviously not holding you to this and will get counsel, CPA, etc. Just generally speaking as I'm considering selling something that the above would apply.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
4y
Originally posted by @Will Gaston:
Thanks @Dave Foster @Steve Vaughan!
FYI the LLC that I'd be selling from is a single member LLC and a pass through on my returns. The new LLC would also be a single member LLC & a pass through on my returns. You think I'd be okay to purchase straight w/ a new LLC? Obviously not holding you to this and will get counsel, CPA, etc. Just generally speaking as I'm considering selling something that the above would apply.

My wife and I did this, Will.

The QI just verified that vesting would be the same and approved it, but I'd wait to here what Dave has to say about it.

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
4y
@Will Gaston, yep. What @Steve Vaughan and his wife did is perfectly normal and actually streamlines things a little to shave some costs of extra work.
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