I just created an LLC and I am about to 1031 a rental in Denver, CO (it'll be listed in a couple days). I want to purchase properties in eastern ID/western WY and put them under my newly formed LLC (the Denver title is under my legal name). I understand that due to the 1031, that I have to be the sole owner/organizer of the LLC.
-Now that I have my LLC entity name, ID no. and other business info, what do I do with it? Do I need to file it somewhere? Is it automatically filed?
-Since I won't have time to put the Denver prop under the LLC before it sales, what is the best method/process for moving the new investments to under the LLC?
-Any other problems/loopholes I should know about?
I'm new to BP and the RE investment game and welcome any advice you can offer.
Thanks in advance, cheers!
@Riley Jordan , You'r 1031 QI may not have given you completely accurate information. In order for your 1031 to be valid the taxpayer for the old property must be the same as the tax payer for the new property. I use the word taxpayer specifically because the taxpayer may not necessarily be who is on deed. The deed is a state issue not a federal one. And since 1031 is a federal statute you need to look at what makes you the taxpayer from a federal perspective.
Since the way you communicate with the IRS is only through your tax returns, the taxpayer for a property under 1031 is actually the tax return that reports that activity of that property. Your property in Denver is titled in your name I'm guessing that you report the rental activity on your personal 1040 schedule E. So that tax return is actually the tax payer for the property.
This is where there may be an opportunity that your QI is missing. If the LLC you filed is a single member LLC and you elect to have it taxed as a sole proprietor then it will not file its own tax return. So if you title a property in that LLC's name where will it be reported? - On your personal 1040 schedule E. If that is the case then whether you title to property in your name or the name of the LLC you are not changing the taxpayer. So it would be fine to sell as yourself and buy as the LLC.
I generally still prefer to see the deeding match as closely as possible just in case of an inexperienced field auditor who doesn't understand 1031 law. But if you want to go that route it's as simple as selling as yourself, using the 1031 exchange and buying as yourself. And after the fact contributing the property into the LLC. In general contributions into and out of entities are not taxable events.
Either way you've got options that you haven't been told about.
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