Partnerships are great for buying real estate. They’re efficient vehicles for owning, holding, and managing real estate. But when it comes time to sell, there’s no elegant exit for the individual partners. The partnership has owned the property. The partners themselves don’t own an interest in real estate. Partnership interests are excluded from 1031 exchange treatment. This is the biggest planning opportunity – to figure out an elegant exit before you list your property for sale.
The high level thinkers in the 1031 exchange industry are constantly thinking about the concept of qualified use. If I distribute out your partnership interest to you and you now own an undivided 1/7 of the property (because you owned 1/7 of the partnership), how long must you hold that property before you are eligible to do a 1031 exchange? There is a debate going on about this scenario. Some tax professionals think that you can tack the period of time that the partnership owned the property to the period of time that you owned it so you could immediately do an exchange after distribution out of the partnership. Other tax professionals think that doing a 1031 exchange so quickly after distribution would not qualify for 1031 treatment.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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