| Sell LLC stake, do 1031 exchange: is this allowed? |
|
|
|
|
|
bokun
New Member
Cash: $ 0.70
Posts: 3
Joined: 01 Sep 2005
|
| Sell LLC stake, do 1031 exchange: is this allowed? |
 |
|
Hi from a newbie...If I have minority ownership in an LLC, and the LLC owns three properties, can I sell my share in the LLC to the other members, and defer cap gains tax on the appreciation of my LLC share, by purchasing new like kind properties in my own name?
Thanks for any info, pointers to relevant sites, etc.
cheers, Ben
|
Thu Sep 01, 2005 5:16 am |
|
|
bong12187
Preferred Member
Cash: $ 24.50
Posts: 120
Joined: 31 Jul 2005
|
| Re: Sell LLC stake, do 1031 exchange: is this allowed? |
|
|
quote:
Originally posted by bokun
Hi from a newbie...If I have minority ownership in an LLC, and the LLC owns three properties, can I sell my share in the LLC to the other members, and defer cap gains tax on the appreciation of my LLC share, by purchasing new like kind properties in my own name?
Thanks for any info, pointers to relevant sites, etc.
cheers, Ben
Sorry but the answer is no. The LLC is considered by IRS as a separate entity and will allow it to do a 1031 exchange. What you are proposing is selling your own share. For a 1031 exchange to work, the property itself must be sold. However, proceed must be given to the entity or LLC. The LLC will get the credit for the 1031 exchange not the three of you. What the three of you will get is the share from that profit.
Let me give you a different scenario. Lets say that the LLC made 30K of profit for this year from rental. You are supposed to be getting 10k out of the 30k. Are you going to be able to do a 1031 exchange out of your 10k. Of course not. This is because what you are receiving are shares of your profit from your LLC. 1031 exchange only works to shield or rather to defer capital gains tax made from selling your property.
I hope I made it clear as mud.
|
|
Thu Sep 01, 2005 6:08 am |
|
|
bokun
New Member
Cash: $ 0.70
Posts: 3
Joined: 01 Sep 2005
|
| So, would it work if we dissolve the LLC? |
|
|
Let's say all LLC members agree to dissolve the LLC and take ownership of the properties directly. After dissolving, I sell my share in each of the three property holdings to the remaining members, who join together as a new group to buy the buildings.
In this case, would my 1031 be allowed? Or is the dissolution of the LLC a taxable event in itself?
For example, let's say my basis in the LLC is $100,000. The current valuation of my share is $500,000. We dissolve the LLC and we put my name directly on the title of the properties along with the names of the other original LLC members. Then I sell the properties to my former LLC partners...we take my name off the title, and keep theirs on. In this case can I 1031 my proceeds? Or is it the case that the change of ownership of the properties (from LLC ownership to ownership by the individual members) is a taxable event itself, even though we didn't actually "Sell" the properties when dissolving the LLC, we just did a title change?
Sorry for the convoluted question, and thanks so much for any contributions or suggestions!
cheers, Ben
|
|
Thu Sep 01, 2005 3:25 pm |
|
|
bong12187
Preferred Member
Cash: $ 24.50
Posts: 120
Joined: 31 Jul 2005
|
| Re: So, would it work if we dissolve the LLC? |
|
|
quote:
Originally posted by bokun
Let's say all LLC members agree to dissolve the LLC and take ownership of the properties directly. After dissolving, I sell my share in each of the three property holdings to the remaining members, who join together as a new group to buy the buildings.
In this case, would my 1031 be allowed? Or is the dissolution of the LLC a taxable event in itself? It might work. The dissolution of the LLC is what worries me. I don't know if it is going to be a taxable event. Let's look at another example, if Bob (fictitious guy) owns the the 3 rentals and he decides to give it to the three of you, would he incur capital gains tax if he originally purchased the property for 300k and they are now worth 600k? I believe the answer is no since he is not receiving a single penny for it. Now since LLC is considered another entity, the same scenario might work. There is no law against giving up your property. Wow, this is deep and I just can't be sure. Need help..
For example, let's say my basis in the LLC is $100,000. The current valuation of my share is $500,000. We dissolve the LLC and we put my name directly on the title of the properties along with the names of the other original LLC members. Then I sell the properties to my former LLC partners...we take my name off the title, and keep theirs on. In this case can I 1031 my proceeds? Or is it the case that the change of ownership of the properties (from LLC ownership to ownership by the individual members) is a taxable event itself, even though we didn't actually "Sell" the properties when dissolving the LLC, we just did a title change? I'm just afraid that the IRS will see this as tax evasion rather than tax exemption. It is kind of too obvious.
Sorry for the convoluted question, and thanks so much for any contributions or suggestions!
cheers, Ben
|
|
Fri Sep 02, 2005 4:50 am |
|
|
|
