holding period and single member LLC

Dear Steve;
 How long does one need to remain in title on an exchanged property in 
order to enjoy the lowest, and/or long term, capital gains tax rate in the 
 resale of an exchanged property?

 

Dear B:  When you 1031x from one property into another your old basis gets carried forward into the new property with adjustments.  Your holding period also gets carried forward.  Therefore you look at the combines holding periods of both old and new properties.  If the combined holding period is longer than one year then you qualify for long term capital gains treatment.  REMEMBER holding period does not effect the higher tax rate imposed on recaptured depreciation.   Do not make the mistake of underestimating your tax liability because you have a combined holding period of over one year.  Sincerely,

 

Dear Steve;

Thanks for your quick reply to my "holding period" vs. "capital gain" tax liability question.  I have another question which should have been included with the initial one.  A 1031 exchange which was transacted last November thru your office resulted in the acquisition of a commercial property which is now titled in equal shares (50/50) as "Tenants in Common".   The other "tenant" also transacted a 1031 thru your office and used his equity in our mutual purchase.  We would like to establish an LLC to obtain some additional "protection" since the property has an excessive amount of "exposure".  I remember something from your website about being "careful" in doing this and you suggested "additional insurance" to cover potential liability issues.  Since my partner (AKA other "tenant in common") is younger and just starting out, I feel that perhaps I should have additional protection.  Therefore, I have reread the Client Tools article pertaining to "How to Hold Title to Investment Real Estate" and feel it best that I establish a "single member" LLC.  Your opinion of my assessment of the situation would be most appreciated as would be help in establishing the "single member" LLC.  I am domiciled in, and a resident of, Arizona.

 

Dear B: Yes I recommend that each of you establish a single member LLC and then hold title to the property as tenants in common.   Forming a single member LLC requires simple registration with the AZ secretary of state.  Because there is only one member no operating agreement is needed.  Moreover, since it is an entity disregarded for tax purposes no tax id number is required.  Simply use your SS#.  Finally, you might want an agreement between tenants in common to spell out respective duties related to the property.  Sincerely,

Steve Hickox
Attorney / President

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