combining 1031 and Drop & Swap and TIC? RE attroneys and CPAs?
2 Replies
Ki Lee
Rental Property Investor from Cypress, CA
posted 11 months ago
Hello BP!
Looking to connect with Drop & Swap expert - Real Estate attorney and/or CPA
Looking to combine Drop & Swap, 1031, and TIC purchase.
30,000 feet view-
-Ki and Daniel each owned their rental properties individually in their personal names
-Ki and Daniel each sold their rental properties in their personal names and are doing 1031 exchange
-Ki and Daniel decided to collaborate on the 1031 exchange by combining their funds to buy a larger deal for replacement asset.
-The 1031 QI advised that the best structure to do this is to take title to the replacement property as TIC.
-We have an apartment under contract and its in the Franklin County, OH
-Ki and Daniel each have our own individual, single-member, disregarded OH LLCs
-each OH LLC's are also owned by respective WY LLC's, also single-member and disregarded.
-The
plan was for Ki's OH LLC and Daniel's OH LLC to take title as TIC for
the replacement property, and each of our OH LLC's will be owned by our
respective WY LLC's
NOW....
-We want to do a drop &
swap where the seller puts the title of their asset under a new LLC, and
then we buy the membership interest in the new LLC instead of "buying
the property." This can potentially avoid new tax assessment of the
property that is triggered by a sale, thus saving taxes for the buyer,
and saving the sellers transfer taxes.
- from our understanding,
combining 1031 and Drop & Swap is possible when it's dealing with
single buyer who takes 100% of ownership interest of the newly formed
LLC as single-member and disregarded.
- what we want to explore
is the possibility of doing the drop and swap and 1031 when we are
purchasing the replacement asset as TIC. So when we buy the membership
interest of the new LLC, it will not be single-member LLC, but both of
us will be owners of the newly formed LLC. How can we structure this
properly so that it's Kosher for the IRS and so that the integrity of
the 1031 will not be compromised?
If there are any expert RE lawyers or RE cpa's out there, I'd love to connect.
John Lenhart
Rental Property Investor from Cincinnati, OH
replied 11 months ago
I would first recommend consulting an Ohio based attorney (not just Ohio licensed). I would recommend Steve Robison. He is a 1031 agent and attorney who specializes in real estate and taxation law. He assisted us on a rather complicated 1031 lately that set up similar to your scenario.
Secondly, if you are buying in Columbus, I would move carefully on the drop down LLC. See the case citation I attached below. The school district in Columbus is on the prowl for these types of transactions and are aggressively going after people for these transactions. Columbus and Cleveland are getting tough to do the drop down entity transaction. It is not as bad in Cincinnati still, but that could be changing soon.
Read the case. I almost would recommend that the safer way to go, especially in Columbus, is to do a personal property carve out
Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2020-
Ohio-353.]
Ki Lee
Rental Property Investor from Cypress, CA
replied 11 months ago
Originally posted by @John Lenhart :I would first recommend consulting an Ohio based attorney (not just Ohio licensed). I would recommend Steve Robison. He is a 1031 agent and attorney who specializes in real estate and taxation law. He assisted us on a rather complicated 1031 lately that set up similar to your scenario.
Secondly, if you are buying in Columbus, I would move carefully on the drop down LLC. See the case citation I attached below. The school district in Columbus is on the prowl for these types of transactions and are aggressively going after people for these transactions. Columbus and Cleveland are getting tough to do the drop down entity transaction. It is not as bad in Cincinnati still, but that could be changing soon.
Read the case. I almost would recommend that the safer way to go, especially in Columbus, is to do a personal property carve out
Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2020-
Ohio-353.]
Thank you, John! I will reach out to Steve.