1031 use for Franchise sale

7 Replies

Newbie to 1031's here. Ive been reading up and ive had difficulty finding an answer. I own a business that I am selling and I will pull out a chunk of money after paying off the remaining debt service. Does anyone know if its possible to use those funds towards a multifamily or other investment property with a 1031.

Nope.....sale of real estate to real estate....not sale of business to real estate.

@John Alexander , Actually the answer is yes.  In the sale of a business you may exchange the land/building assets for other investment land/buildings.  You may also exchange the FFE for similar class/use FFE.   This is more restrictive than the rules surrounding the exchange of real estate.

However, you need to be paying very close attention to the new proposed budget which will eliminate the exchangeability of FFE in a business sale.

Originally posted by @Dave Foster :

@John Alexander, Actually the answer is yes.  In the sale of a business you may exchange the land/building assets for other investment land/buildings.  You may also exchange the FFE for similar class/use FFE.   This is more restrictive than the rules surrounding the exchange of real estate.

However, you need to be paying very close attention to the new proposed budget which will eliminate the exchangeability of FFE in a business sale.

 Awesome... Thanks for the response that makes a lot of sense. Is there anywhere that states (in a more defined manner) what similar class/use means? 

like exchange: A building used for your retail store or restaurant that you wish to exchange for another commercial bldg.

Keep in mind 1031 is being debated in congress all year.  There is a likelihood it may end as IRS wants more revenue.  Suggest you not thinking you can do it.    Contact ipx1031.com or equivalent exchange companies.  

@Sam Shueh , That's not quite totally accurate.  The real estate portion of any 1031 can be exchanged for any other kind of investment real estate.  If @John Alexander ,s sale is of a commercial building with his business in it he may use the 1031 portion to purchase any kind of investment real estate - yes another commercial building.  But he could also exchange for multi family, raw land, vacation rentals etc etc.

Also, the latest news is that 1031 for real property will survive barring any changes to the latest bill.  However, it looks like exchanges for the  FFE might be going away.  So @John Alexander, that could place some urgency on your sale if you want to included the FFE.  Most interpretations of like kind for non-real estate assets use the North American Industrial Classification code.  Honestly, we one off everyone of these to our overpaid but very valuable house attorneys to verify compliance.  In general, food service equip for other food service or mining for mining etc.

@Dave Foster My assumption was the OP was selling a business, with no real estate involved.  Can you do a 1031 for the sale of just the business into a real estate purchase?

@Wayne Brooks , Nope,  You were right on about the real estate component.  But we do a lot of FFE exchanges on businesses in leased real estate.  That's why it was fresh in my mind.

 it's just real estate for real estate or assets for very similar assets, or a combination for a sale of a business and a purchase of a similar business.

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