There are many ways to acquire new replacement property in a 1031 exchange. It’s important to know all of the options available so you can make the best decision for your situation. In this article, we are going to discuss whether or not a married couple can buy their replacement property in a single-member LLC.
Consider the Relinquished Property First
If both spouses owned the old Relinquished Property together, then the IRS will allow them to take title together though a limited liability company that is a disregarded entity (owned solely by a husband and wife in a community property state, provided that they file a joint tax return together) to be titled on the replacement property. Rev. Proc. 2002-69.
The general rule is that they both take title to the replacement property in their individual capacity. However, the exception to the rule is for them to take title though a single-member disregarded entity that is disregarded for federal tax purposes. If the taxpayers live in a non-community property state, and the husband and wife hold the relinquished property jointly but wish to hold the replacement property in an LLC, they should form two separate single member LLCs.
Revenue Procedure 2002-69
Revenue Procedure 2002-69 permits a business entity that is wholly-owned by a legally married couple as community property to treat that entity, which has not elected federal taxation pursuant to either Subchapters C or S, as either a disregarded entity, or a partnership taxed pursuant to Subchapter K of the Internal Revenue Code.
CPEC1031, LLC
At CPEC1031, we do our best to simplify the 1031 exchange process for our clients. With over twenty years of experience, our qualified intermediaries can help you with any issues that may arise during the process. Contact us today at our office in Minneapolis to set up a time to chat with one of our specialists about the details of your exchange.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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