1031 - Transfer Title to LLC - Timing?

Question

I’ve searched the forums but can’t find an answer. I’m hoping a season investor or CPA can chime in.

I currently hold title in my own name and have a mortgage in my own name. I’d like to sell my property in a 1031 exchange and hold title on the next property in the name of my newly formed LLC. Can I do this by completing a quit claim to the LLC before sell the initial property? Are there any adverse tax consequences to doing so since I’ve taken depreciation for 3 years already? Or is the tax deferred as it would be in a traditional 1031?

Additionally, would you recommend a quit claim before or after the 1031 exchange is complete and why?

Dave Foster · Answer

Account Closed, Doing a quit claim on either side probably isnt necessary or advised - if for no other reason than an inexperienced field agent in an audit could possibly try to claim that you were changing the tax payer to avoid tax.  But the reality is that if the LLC is disregarded and the property continues to be reported on your tax return then regardless of what name is on deed you are still the taxpayer and a quit claim is not necessary.

Be careful though to verify with your accountant though on the status of your LLC.  It is not enough that the LLC is a single member to make it disregarded.  That is only part of the requirements and does not make it disregarded by itself.  Your LLC must be a single member and it must elect to file taxes as a sole proprietor.  Otherwise it will file its own tax return and activity of the property will move from your return to the LLC's return.  That is not a disregarded entity and would invalidate your exchange.

Bill Exeter · Answer

Hi Account Closed,

You can sell your relinquished property under your individual name (no quit claim deed required) and subsequently acquire your replacement property under the new LLC as long as the new LLC is a single member limited liability company, you are the sole member of the new LLC, and the new LLC is treated as a disregarded entity for tax purposes. Disregarded means that it is ignored for income tax purposes and treated as if you acquired the new replacement property as an individual for tax purposes.

Account Closed · Answer

@Bill Exeter @Scott Wolf

Thank you both for confirming. I appreciate the guidance!

Scott Wolf · Answer

A QC deed is not necessary.  You can sell an individually owned property and buy the replacement property with a disregarded single member LLC (where you are the sole member) with no issues. For tax purposes they are treated as one and the same.

1031 - Transfer Title to LLC - Timing?

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