disregarded entity

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Acquiring 1031 Property as an Individual vs. Corporation

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1031 Property - Individual vs. Corporation

If I sell my property that was held in my individual name can I acquire my like-kind replacement property in my corporation? That’s our topic for conversation in this article.

Same Taxpayer Requirement

The short answer is no. Remember that the same taxpayer that sold the relinquished property needs to be the same tax payer that acquires the replacement property.

Oftentimes corporations are viewed as a separate or different taxpayer. They have their own EIN number, the stockholders may be the same as the owner of the relinquished property but they're probably not viewed as a disregarded entity or pass through for the purposes of 1031s.

Individual or Disregarded Entity

A more appropriate purchaser of the replacement property would either be the individual that owned the relinquished property or a disregarded entity such as an LLC that is wholly owned by the individual that sold to relinquished property.

  • Start Your 1031 Exchange: If you have questions about corporations, stockholders, and 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges with Disregarded Entities

1031 disregarded entity

Consider the following 1031 exchange example we recently ran into with a client: The client and his wife were looking to sell a 4-plex held by an LLC that they both owned together (100%). They wanted to use those funds in a 1031 exchange to purchase another apartment, but with a different LLC name that they would also both own 100%. Would this be allowed under 1031 exchange rules since more than one person owns the entity?

Disregarded Entities

The same taxpayer that owned the old Relinquished Property must receive the Replacement Property to complete the 1031 exchange. The question brings up the issue of disregarded entities.

The IRS will only allow an LLC that is a disregarded entity (owned solely by a husband AND wife in a community property state, e.g., California) to be titled on the replacement property. Rev. Proc. 2002-69. In this case a multi-member LLC owned by you and your wife sold the Relinquished Property. It is not a disregarded entity.

The old LLC owned the Relinquished Property, and the old LLC should be the owner of the new Replacement Property.  You can do this by changing the name of the old LLC by filing a name-change amendment with the Secretary of State; or by having the old LLC be the sole owner of the new LLC (which would also have to be a disregarded entity).

Please check out this article on 1031 exchanges, LLCs, and married couples for more information.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges and disregarded entities, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved

Defer the tax. MAXIMIZE your gain.