Home › Forums › Closed Forums › Buying and Selling RE › can one do a 1031 exchange from a partnership of a commercial RE?
- This topic has 5 replies, 3 voices, and was last updated 11 years, 4 months ago by urbanrealtor.
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November 26, 2012 at 8:09 PM #20318November 26, 2012 at 8:43 PM #755310SK in CVParticipant
Me thinks the question is whether 1 of the 4 partners can do a §1031 exchange while the others take the money and run. The answer is maybe yes, but not without some pretty careful planning. Generally, what you need to dissolve and liquidate the partnership prior to the sale, which would include distributing the property to the individual partners, and sell an undivided interest in the former partnership property. There’s all kinds of other things that might make it not feasible or even desirable. Pay the professional fees necessary to make sure you do it right.
November 26, 2012 at 8:53 PM #755311CoronitaParticipant[quote=SK in CV]Me thinks the question is whether 1 of the 4 partners can do a §1031 exchange while the others take the money and run. The answer is maybe yes, but not without some pretty careful planning. Generally, what you need to dissolve and liquidate the partnership prior to the sale, which would include distributing the property to the individual partners, and sell an undivided interest in the former partnership property. There’s all kinds of other things that might make it not feasible or even desirable. Pay the professional fees necessary to make sure you do it right.[/quote]
Thanks sk….
Is there any specific reason you mention “1 of 4” partners… Is it a definite no if more than one of the partners wanted to do an exchange of his/her portion, or will this only be possible if no more than 1 partner does an exchange?
November 26, 2012 at 9:06 PM #755313SK in CVParticipantNo, I only mentioned one because that’s what I thought you were describing. (I wrote the comment before you clarified in your comment.) It would work the same way if any or all of the partners wanted to go into separate §1031s or some wanted to join you in your new investment.
November 26, 2012 at 9:34 PM #755322urbanrealtorParticipantYou have 2 problems here.
1: The entity has to be consistent.
EG: John Smith is not Smith LLC is not Smith Partnership is not Smith, Inc.
If you sell the downleg as Smith LP, you need to buy the upleg as Smith LP.2: You need to buy for as much as you sell for.
EG:
Smith LLC sells for $500k (which it originally bought for $200k).
The proceeds are $100k cash and $400k of loan payoff.
The subsequent purchase needs to be for $500k.How do I know this?
I am the former senior exchange consultant for 1031 Exchange Advantage (aka Prudential 1031).Things that don’t matter:
-The size of the profit (unless it is small enough for a 1031 to be irrelevant).
-The percentage of ownership of each of the members
-The type of property. Real property is real property and personal property (like stock certificates or ownership documents) are not.November 26, 2012 at 10:08 PM #755309CoronitaParticipant..and to answer the possible question….No, none of the partners are interested in staying together and exchanging the commercial RE being sold for another commercial RE….
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