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Question on 1031 exchange
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notataxexpert
Sep 19, 2015, 9:30:04 PM9/19/15
to
I would like to do a 1031 exchange.
I want to sell our rental home which is in my husband's name and mine and buy a commercial property and have it in the name of a LLC to shield us from any liability.
Under 1031 exchange rules, can this be done?
If not, is there a solution to such a situation?
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I want to sell our rental home which is in my husband's name and mine and buy a commercial property and have it in the name of a LLC to shield us from any liability.
Under 1031 exchange rules, can this be done?
If not, is there a solution to such a situation?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Stuart A. Bronstein
Sep 20, 2015, 10:50:05 AM9/20/15
to
notataxexpert <suegard...@gmail.com> wrote:
> I would like to do a 1031 exchange.
>
> I want to sell our rental home which is in my husband's name and
> mine and buy a commercial property and have it in the name of a
> LLC to shield us from any liability.
>
> Under 1031 exchange rules, can this be done?
>
> If not, is there a solution to such a situation?
You will need to make the exchange before you put the property into
> I would like to do a 1031 exchange.
>
> I want to sell our rental home which is in my husband's name and
> mine and buy a commercial property and have it in the name of a
> LLC to shield us from any liability.
>
> Under 1031 exchange rules, can this be done?
>
> If not, is there a solution to such a situation?
the LLC, but that should work, yes.
If you use an LLC, be careful. You can elect that an LLC be taxed
as a C-corporation or an S-corporation. Otherwise it is ignored
and taxed as if the LLC didn't exist (for most purposes).
It is not normally a good idea to have real estate in an entity
taxed as a corporation.
If you are worried about liability, with an LLC you can still lose
your entire investment. The best protection is a good liability
insurance policy. If you want an LLC on top of that, do it. But
don't use the LLC as the primary protection.
--
Stu
http://DownToEarthLawyer.com
John Levine
Sep 21, 2015, 12:20:04 AM9/21/15
to
>If you use an LLC, be careful. You can elect that an LLC be taxed
>as a C-corporation or an S-corporation. Otherwise it is ignored
>and taxed as if the LLC didn't exist (for most purposes).
If it's a two member LLC, isn't it taxed as a partnership? Are
>as a C-corporation or an S-corporation. Otherwise it is ignored
>and taxed as if the LLC didn't exist (for most purposes).
there special rules if the partners are married to each other?
Stuart A. Bronstein
Sep 21, 2015, 10:15:05 AM9/21/15
to
John Levine <jo...@iecc.com> wrote:
>>If you use an LLC, be careful. You can elect that an LLC be
taxed
>>as a C-corporation or an S-corporation. Otherwise it is ignored
>>and taxed as if the LLC didn't exist (for most purposes).
>
> If it's a two member LLC, isn't it taxed as a partnership?
Normally, yes. But taxed as a partnership still means that it's
>>If you use an LLC, be careful. You can elect that an LLC be
taxed
>>as a C-corporation or an S-corporation. Otherwise it is ignored
>>and taxed as if the LLC didn't exist (for most purposes).
>
> If it's a two member LLC, isn't it taxed as a partnership?
not a recognized entity. The partnership is mostly about reporting
rather than how anything is actually taxed. Also, not all ventures
of more than one person are required to be taxed as a partnership.
> Are there special rules if the partners are married to each
other?
they file a joint return, a partnership return is not necessary.
The point is that being taxed as a corporation (C or S) can
diminish whatever tax benefits there may be when owning real
estate. Being taxed as a proprietorship or as a partnership does
not involve that same issue.
--
Stu
http://DownToEarthLawyer.com
ira smilovitz
Sep 21, 2015, 1:05:04 PM9/21/15
to
On Monday, September 21, 2015 at 10:15:05 AM UTC-4, Stuart A. Bronstein wrote:
> John Levine <jo...@iecc.com> wrote:
>
> >>If you use an LLC, be careful. You can elect that an LLC be
> taxed
> >>as a C-corporation or an S-corporation. Otherwise it is ignored
> >>and taxed as if the LLC didn't exist (for most purposes).
> >
> > If it's a two member LLC, isn't it taxed as a partnership?
>
> Normally, yes. But taxed as a partnership still means that it's
> not a recognized entity. The partnership is mostly about reporting
> rather than how anything is actually taxed. Also, not all ventures
> of more than one person are required to be taxed as a partnership.
>
> > Are there special rules if the partners are married to each
> other?
>
> I haven't looked this up lately, but my understanding is that if
> they file a joint return, a partnership return is not necessary.
>
> The point is that being taxed as a corporation (C or S) can
> diminish whatever tax benefits there may be when owning real
> estate. Being taxed as a proprietorship or as a partnership does
> not involve that same issue.
>
> --
> Stu
> http://DownToEarthLawyer.com
>
Under certain circumstances a husband/wife (I guess that should now be spouse/spouse) partnership can elect to split the partnership income without filing a partnership return, but if they form an LLC, the partnership (or other entity) return is required.
> John Levine <jo...@iecc.com> wrote:
>
> >>If you use an LLC, be careful. You can elect that an LLC be
> taxed
> >>as a C-corporation or an S-corporation. Otherwise it is ignored
> >>and taxed as if the LLC didn't exist (for most purposes).
> >
> > If it's a two member LLC, isn't it taxed as a partnership?
>
> Normally, yes. But taxed as a partnership still means that it's
> not a recognized entity. The partnership is mostly about reporting
> rather than how anything is actually taxed. Also, not all ventures
> of more than one person are required to be taxed as a partnership.
>
> > Are there special rules if the partners are married to each
> other?
>
> I haven't looked this up lately, but my understanding is that if
> they file a joint return, a partnership return is not necessary.
>
> The point is that being taxed as a corporation (C or S) can
> diminish whatever tax benefits there may be when owning real
> estate. Being taxed as a proprietorship or as a partnership does
> not involve that same issue.
>
> --
> Stu
> http://DownToEarthLawyer.com
>
Ira Smilovitz
Bob Sandler
Sep 21, 2015, 1:30:04 PM9/21/15
to
>> > Are there special rules if the partners are married to each
>> other?
>>
>> I haven't looked this up lately, but my understanding is that if
>> they file a joint return, a partnership return is not necessary.
>>
>
>> other?
>>
>> I haven't looked this up lately, but my understanding is that if
>> they file a joint return, a partnership return is not necessary.
>>
>
>Under certain circumstances a husband/wife (I guess that
> should now be spouse/spouse) partnership can elect to split
> the partnership income without filing a partnership return,
> but if they form an LLC, the partnership (or other entity)
> return is required.
The OP didn't say what state they are in. In a non-community
> should now be spouse/spouse) partnership can elect to split
> the partnership income without filing a partnership return,
> but if they form an LLC, the partnership (or other entity)
> return is required.
property state a husband and wife LLC has to file as a
partnership. In a community property state, if the spouses
own a two-member LLC as community property, they have the
option to treat it as a disregarded entity instead of as a
partnership.
Rev. Proc. 2002-69 section 4.01:
"If a qualified entity (as described in section 3.02 of this
revenue procedure), and the husband and wife as community
property owners, treat the entity as a disregarded entity
for federal tax purposes, the Internal Revenue Service will
accept the position that the entity is a disregarded entity
for federal tax purposes."
Bob Sandler
Stuart A. Bronstein
Sep 22, 2015, 1:10:04 PM9/22/15
to
Bob Sandler <bob_u...@yahoo.com> wrote:
> The OP didn't say what state they are in. In a non-community
> property state a husband and wife LLC has to file as a
> partnership. In a community property state, if the spouses
> own a two-member LLC as community property, they have the
> option to treat it as a disregarded entity instead of as a
> partnership.
Why would it make any difference in a non-community property state?
> The OP didn't say what state they are in. In a non-community
> property state a husband and wife LLC has to file as a
> partnership. In a community property state, if the spouses
> own a two-member LLC as community property, they have the
> option to treat it as a disregarded entity instead of as a
> partnership.
If they file a joint return it should work out the same both ways, so
why bother filing a partnership return?
--
Stu
http://DownToEarthLawyer.com
John Levine
Sep 22, 2015, 1:50:05 PM9/22/15
to
>> The OP didn't say what state they are in. In a non-community
>> property state a husband and wife LLC has to file as a
>> partnership. In a community property state, if the spouses
>> own a two-member LLC as community property, they have the
>> option to treat it as a disregarded entity instead of as a
>> partnership.
>
>Why would it make any difference in a non-community property state?
>If they file a joint return it should work out the same both ways, so
>why bother filing a partnership return?
I'd think it'd make a difference when one of them dies, if it's held
>> property state a husband and wife LLC has to file as a
>> partnership. In a community property state, if the spouses
>> own a two-member LLC as community property, they have the
>> option to treat it as a disregarded entity instead of as a
>> partnership.
>
>Why would it make any difference in a non-community property state?
>If they file a joint return it should work out the same both ways, so
>why bother filing a partnership return?
as joint tenants, so the survivor owns 100%, or as tenants in common,
so the decedent's share goes into his or her estate.
For annual taxes, I can just barely imagine a situation where one of
the spouses has a large Sched C loss from soemething else, and it'd
affect how much of the LLC income it could offset, but I admit it's a
stretch.
ira smilovitz
Sep 22, 2015, 1:55:06 PM9/22/15
to
Ira Smilovitz
Bob Sandler
Sep 22, 2015, 2:15:04 PM9/22/15
to
community property makes a difference. I don't know why.
"Only businesses that are owned and operated by spouses as
co-owners (and not in the name of a state law entity)
qualify for the election [to not be treated as a
partnership]. See Rev. Proc. 2002-69, 2002-2 C.B. 831, for
special rules applicable to husband and wife state law
entities in community property states."
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Election-for-Husband-and-Wife-Unincorporated-Businesses
or http://tinyurl.com/mgktgun
Bob Sandler
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