Many people own their properties in LLCs, corporations, or trusts and sometimes people like to hold their properties in *land trusts* particularly because of privacy and protection from creditors. People like the anonymity or veil (or secrecy) of the trust because you can't see behind the trust to know who's the actual owner of the property. So for privacy reasons and for protection from creditors sometimes investors like to own their property in land trusts.
1031 Exchanges of Land Trusts
The first question that often comes up with 1031s and land trusts is:
- "How do we do a 1031 exchange if we own our asset in a land trust?"
The answer to the question is the trustee of that land trust can do a 1031 exchange just like any other taxpayer does. In this case the trustee would be the exchanger that would hire the intermediary and dispose of the relinquished property. And rather than having the proceeds from the sale go into the trustee's hands, instead the money goes to the qualified intermediary for the purchase of like-kind replacement property.
Replacement Property Requirements
The trick is that the replacement property needs to be purchased by the exact same taxpayer that held title to the old relinquished property. So either the trustee of the land holding trust will acquire the replacement property in the exact same fashion. Or, alternatively sometimes the trustee will form a new pass-through disregarded entity such as an LLC that's wholly owned by the trustee of the land holding trust to acquire the new replacement property.
- 1031 Hotline: If you have questions about Title Holding Land Trusts, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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