1031 exchange:
Related Party Ownership Structure
Dear 1031x: I want to sell my office building and buy out my father who is 1/4 partner in LLC that owns and leases donut shop. My 2 brothers and I are the other 1/4 partners. Could this be done as 1031 exchange?
Thank you,
D.Dear D: There are several problems with what you are proposing: 1) You cannot sell real estate and buy an interest in a partnership (LLC). That's not a like kind exchange. 2) You cannot buy from a relative in a 1031x unless: a) He is doing a 1031x when he sells to you, or b) the gain that he is recognizing is larger than the one you are deferring. If you really want to do this is a tax deferred manner you could: 1) Restructure the ownership of the donut shop such that the four of you own it as tenants in common. 2) Swap you office building for your father's tenant in common interest in the donut shop. That would be a real estate for real estate 1031 exchange. 3) Have your father hold the office building for two years. This is a requirement of a related party swap in a 1031x. Then your father could sell the office building and your 1031x would not be questioned. I know this is more complicated than you wanted to hear, but you asked.
Sincerely,
Steve Hickox
Attorney / President
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