In any 1031 exchange you must exchange like-kind relinquished property for like-kind replacement property in order to avail yourself of the capital gains tax savings. That may seem simple on the surface, but it gets much more complicated in certain scenarios. Here’s a technical 1031 exchange question we’ve been hearing a lot recently:
In a 1031 exchange, can you combine property owned by two spouses with property owned by an LLC to make one single purchase?
Combining Properties
The short answer is yes. In a 1031 exchange, you can combine 1031 proceeds from relinquished properties owned by two spouses and also from relinquished properties owned by a business entity (that may be owned by one or more of the spouses).
The ownership of the new replacement property could be taken as tenants-in-common with the ratio of ownership allocated between the co-purchases (spouses and business entity) based upon the amount of exchange funds each contributes towards the purchase of the replacement property.
For example, if the spouses individually contributed $1M of exchange funds, and the business entity contributed $3M of exchange funds for the purchase of the replacement property, then the ratio of ownership would be 25% spouses, and 75% business entity. The deed would show this ownership division with the two co-purchasers receiving title to an undivided tenant-in-common interest in the replacement property.
The deed might read: Grantor hereby conveys the property to John and Mary Doe, husband and wife as to an undivided 25% tenant-in-common interest; and Doe Enterprises Holding Company, LLC as to an undivided 75% tenant-in-common interest.
CPEC1031, LLC
If you have further questions about 1031 exchanging property involving multiple owners, don’t hesitate to reach out to CPEC1031. Our qualified intermediaries have over two decades of experience facilitating exchanges of all shapes and sizes. Contact us today to learn more about how we can help with your 1031 exchange!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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