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Can my LLC use 1031 to buy one of my personal investment properties?


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#1 brchiz

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Posted 02 January 2013 - 11:18 AM

I have an LLC that my Wife and I are the only members. We own 3 properties under the LLC and another 7 properties in our personal name.

We are considering selling one of the LLC owned properties and wanted to know if we can use a 1031 exchange to have the LLC purchase one of our personal properties?

The goal would be to sell the property to the LLC for fair market value (roughly what we paid for it), return our original down payment to us and obtain a new loan under the LLC at today's low rates.

All of the properties and the LLC are based in Oregon.

#2 adjusterjack

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Posted 02 January 2013 - 09:55 PM

No, that's not going to work.

The LLC is ignored for tax purposes.

You'd be attempting a 1031 exchange with yourself.

Tax_Counsel can explain it better than I.

Warning: Legal issues are complicated. Explanations and comments here are simplified and might not fully explain the ramifications of your particular issue. I am not a lawyer. I do not give legal advice. I make comments based on my knowledge and experience. I guarantee nothing. If you act on my comments without the advice of an attorney, you do so at your own risk.


#3 Tax_Counsel

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Posted 03 January 2013 - 08:37 AM

The LLC is ignored for tax purposes.

No, the LLC is not ignored for tax purposes. A single member LLC is disregarded (i.e.ignored) for federal tax purposes. A LLC with more than one member is treated like a partnership. (This assumes that no election for the LLC to be treated as a corporation has been made). Here, the LLC is owned by two people: the husband and wife. Thus, for federal tax purposes, it is treated by default as a partnership.

No, that's not going to work.

Because the LLC is viewed as a partnership and thus a separate entity, it’s possible the exchange might work. I’m not sure I’m clear, however, on the proposed transaction. If I’m understanding it correctly, it would basically be this example: XYZ LLC, treated a partnership for federal tax purposes, owns several properties including Blackacre. XYZ LLC is owned by John and Mary Doe. XYZ LLC proposes to sell Blackacre to Fred Smith, a person completely unrelated to John and Mary Doe and Fred has no interest at all in XYZ LLC. The funds received in the sale, however, would be held by an intermediary to complete a § 1031 transaction known as a “Starker exchange.” XYZ then buys Whiteacre from John and Mary Doe at fair market value in a transaction that is recognized for federal tax purpoes. That is, Whiteacre is the replacement property for the LLC in the Starker exchange. Is that the transaction you have in mind?

#4 Guest_FindLaw_Amir_*

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Posted 03 January 2013 - 10:33 AM

Before proceeding with such a transaction, you may want to discuss this with a local Lawyer to advise you further in detail about your options and how to proceed.

#5 brchiz

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Posted 03 January 2013 - 12:10 PM

That is exactly what we are looking to do.

The purpose would be two fold... to move a personally owned property into the LLC and to pay down and refinance that property.




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