Discussion:TIC, LLC, & 1031

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Discussion Forum Index --> Tax Questions --> TIC, LLC, & 1031

TonyM (talk|edits) said:

12 January 2007
It seems like everybody is a real estate investor these days. What I am seeing more of is clients purchasing property with 1 or 2 others as tenants in common. We report the the individuals percentage on schedule E. Then later they set up an LLC and need a partnership return done. I have to now tell them that they are no longer eligible for a section 1031 exchange. What are some of the options?

Have each TIC set up a single member LLC? Since this is a disregarded entity I assume it would still qualify for 1031.

Have the LLC (taxed as a partnership) do the exchage then allocate any gain to the partners that cashed out?

Any thoughts?

Blrgcpa (talk|edits) said:

12 January 2007
You can't just purchase property and call it a 1031 exchange. You have to sell property and purchase property with a qi as the middleman. The property sold and the property purchased must be owned by the same business entity.

TonyM (talk|edits) said:

12 January 2007
Sorry I wasn't clear. I was refering to any subsequent sale being eligible for a 1031 exchange by the individual owners assumung all other conditions are met. TIC interest qualify for 1031 exchanges with certain limits but partnership interests do not.

If the owners want the liability protection of an LLC but would still like to have the option of defering gain on a subsquent sale what are the options?

Dennis (talk|edits) said:

12 January 2007
If some of them want to cash out you are pretty much confined to treating each tenant in common interest as a separate entity.

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