Tax Guru – Ker$tetter Letter

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1031 of LLC Property

Posted by taxguru on May 6, 2007

Q:

Subject: Exchange Question

Dear Tax Guru,

I own a residential rental property in AZ under an LLC with a partner. We are in the process of selling it after two+ years of ownership.

Am I able to do a 1031 exchange with the proceeds of this sale into a commercial property that I am looking to invest in under a different LLC with another partner?

Thanks for your help.

A:

It depends on the official ownership title for the property. If it’s in your individual names, you can each use your share of the proceeds for whatever you want, 1031 exchange or taxable sale.

If the property’s title is in the name of the LLC, and you don’t all want to reinvest into new property, you will need to get your share out of the LLC’s name and into your own name before the disposal, so that you can do a 1031 with your share of the proceeds. This is a common event and any experienced title company or abstract attorney can handle this.

You also need to coordinate with your and the LLC’s tax preparers to keep track of the property’s cost basis, the distribution to you, and the reporting of the 1031.

Good luck.

Kerry Kerstetter

TaxCoach Software: Are you giving your clients what they really want?

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