1031 exchange question...Replacement propery - Posted by Mich_Mike

Posted by Mich_Mike on June 03, 2003 at 12:38:49:

Yeah, I see your point. I have found a 1031 guy that is also into creative real estate. We are going to talk at length later tonight (nice of him) to structure my business for optimal flexiblity and protection.
I will let you all know what we came up with. It sure is nice to have a place to put your “dumb” ideas so that someone can prevent you from doing a “doh!!”


1031 exchange question…Replacement propery - Posted by Mich_Mike

Posted by Mich_Mike on June 03, 2003 at 11:27:07:

Here is the situation:
Selling home in GA, will receive ~37K after sale. Want to do a 1031 exchange and buy property in Michigan.
The GA home is in my name (bought 10 years ago). I am forming an LLC and S Corp and want to buy the replacement property in the LLC and have the S Corp manage it.
Can I do this? Do I have to buy the property myself and then deed it to the LLC?
I am worried that if I have to do the latter, that I will have to pay transfer tax on the sale to my LLC. That would really blow.
Thanks in advance.

Re: 1031 exchange question…Replacement propery - Posted by Michael (NJ)

Posted by Michael (NJ) on June 04, 2003 at 10:09:06:


I am a tax accountant/CPA that has significant experience in Sec. 1031 exchanges. Be careful of all of the “traps” in the law regarding 1031 exchanges; for example, it is a “no-no” to get cash in your hands (may be considered “boot”). Read up on the technical rules of 1031 before you do the deal; more than one person has called my office AFTER the deal and they find out too late that they violated a rule & their exchange was taxable! There are plenty of posts in the archives regarding the technical aspects of the 1031 or you can email me directly.

Your question about whether your LLC can purchase the replacement property directly for you rather than you buying it and deeding it to the LLC is answered very simply. If the LLC is owned by you only (100%), the IRS disregards the LLC; the IRS acts like the LLC doesn’t exist and assumes you bought the replacement property directly.

Worry about more than that… - Posted by ken in sc

Posted by ken in sc on June 03, 2003 at 12:34:01:

The transfer tax is the least of your worries. Selling soon after an exchange is a no-no. It could negate your exchange. You need to get some good tax advice. Try John Hyre on the legal board.