1031 From Married Couple LLC Into Individuals On Title
Can we 1031 money from a property held by our LLC (married couple as members) into property that will be held in our own names? We currently have rehabs that we will be flipping that are held in our LLC, but we may want to invest in new construction with the 1031 proceeds, but the lenders will typically not allow us to hold the title on the new properties in our LLC, creating the need for us to hold them in our individual names initially, before we transfer to a Land Trust with our LLC as the beneficiary at a later date.
I have read on the web and in these forums something to indicate this, but I was just hoping to pull from anyone who had experience with this.
Thanks - you have all been very helpful in the past!
Generally speaking, your rehab-flip property is not eligible to participate in a 1031 exchange, so your question is really moot. Your transaction is, instead, a dealer disposition.
The replacement property in a qualified 1031 exchange must be titled in the same manner as the relinquished property.
Your licensed tax professional can give you specific details.
I understand. But, when you say "technically" - referring to our dealer status - if we are only doing 1 or 2 of these this year, could we avoid that status and use the 1031? Or do you have to hold a property for 1 year to 1031 it?
There is no limit on the time that you hold a property before you 1031 it for another property, BUT you must have the intention of holding it as an income producing property. Of course you could change your mind 10 minutes after you finish the rehab that you dont like the property after all and you want to 1031 it for another property. Will the IRS notice a pattern if this is done a few times?? They are not THAT dumb.
A friend 1031ed a property for a rehab that he completed. He was trying to lease the new property, but got frustrated and is now selling it a couple of months later because he wants to get a commercial building with some cash flow. He had the intention to keep it, but changed his mind.
As far as the title issue, Title must be the same when you sell as when you buy. If "I buy houses, LLC" sells the property, then "I buy houses, LLC" must buy the next property. Your bank will understand the 1031 and give you a loan as long as you personally guarantee the loan. After you personally guarantee a few and have no problems, your company should be able to develop its own credit worthiness, just like an individual.
Quote:On 2005-09-21 23:34, phildo22 wrote:
I understand. But, when you say "technically" - referring to our dealer status - if we are only doing 1 or 2 of these this year, could we avoid that status and use the 1031? Or do you have to hold a property for 1 year to 1031 it?Someone else may have said "technically", not me.
I refer to the tax code definition of a dealer disposition as "any disposition of real property primarily held for sale to customers". The word ANY in this definition means that your rehab-flip is a dealer disposition, even if you only do one.
Property primarily held for sale to customers is merchandise (or inventory) to your business activity, and is not property.held for an investment use. Merchandise to your business is not investment property, and therefore, not eligible to participate in a 1031 exchange.
This question is probably best answered by your CPA or tax attorney. But for starters, what about first moving them into a family trust?
NewKid
let appologize in advance... I am dumber than dirt...
I too dont understand why they dont use a Trust or place the property in a corporation and sell the shares of the corp on an installment sale with installments less than the 11000 gift tax.