Q:

I had a quick question about a 1031 exchange we are performing.  We sold a property in which we had a 50% share.  Those funds are being held by an intermediary right now.  We have located another property in which we will be tenants in common with four other people.
Now my question is at what point can we form an LLC to hold this new property? Could this be done before the close of escrow or do we have to wait a few months before we can do it?  What is the IRS's stance on this topic?  The escrow agent is saying it should be done after the close of escrow.

Thank You,

A:

One of the basic requirements for a valid 1031 exchange is that the names on the title of the old and new properties are the same.

Thus, if you owned the previous property in your personal name, you need to take title to the new one in the same way.

Later, after the dust has settled and you have acquired the new property, you can then contribute it to an LLC if that is what you want to do. 

There are some possible twists to doing this that you will want to work out with your personal tax advisor, such as setting the property's basis on the LLC's books as the same as it was on your personal books.

I hope this helps.  To be honest, your exchange facilitator should have covered this with you as it is a basic component of 1031 exchanges.

Good luck.

Kerry Kerstetter

Labels: 1031

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/29/2005 12:54:00 PM Send this post: