LLC related party exchanges


D

daojoneser

I am a 50% member in an LLC with my business partener Chris.
We have just sold a building and are intending to enter
into a 1031 exchange. One of the properties we have
identified is Chris' mothers residential investment
property. She has lived in the home for 2 out of the last
five years. If we purchase the property and she "cashes
out" so to speak, do we disqualify the exchange as part of
the related pary exception in the IRC 1031? Can we get
around this problem by decreasing Chris membership in the
LLC to less than 50%? Thanks for your help on this matter,
I'm sweating bullets.
 
Last edited by a moderator:
L

L K Williams

I am a 50% member in an LLC with my business partener Chris.
We have just sold a building and are intending to enter
into a 1031 exchange. One of the properties we have
identified is Chris' mothers residential investment
property. She has lived in the home for 2 out of the last
five years. If we purchase the property and she "cashes
out" so to speak, do we disqualify the exchange as part of
the related pary exception in the IRC 1031? Can we get
around this problem by decreasing Chris membership in the
LLC to less than 50%? Thanks for your help on this matter,
I'm sweating bullets.
You say you "have just sold a building . . ." If you are
using the past tense correctly, it is too late to do a 1031
exchange. In order to make such an exchange, you have to
comply with ALL the requirements, including the requirement
that the transaction be structured as an exchange from the
beginning. Also, you must have an intermediary engaged to
receive the proceeds from the sale.

As such, the related parties rules are irrelevant.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
 
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D

daojoneser

Sorry I did relay the information correctly. We ARE in 1031
exchange already. We have identified three properties, one
of which is the property of Chris' mother. My 1031 exchange
company holds the funds and will release when we close.
However Chris' mother is going to cash out since the
property served as her primary residence for 2 of the last 5
years. We would be using the property as a cash flow
producing investment.
 
Last edited by a moderator:

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