Can a limited partner do a 1031 exchange?

A partnership can distribute real property to its partners so that the partners can exchange the property in a Sec. 1031 like-kind exchange; if the exchange is properly structured, some of the partners can trade their interests in the property distributed in Sec.

No, an LLC member interest, where the LLC elects to be treated as a partnership, or partnership interest is considered personal property and cannot be exchanged. IRC Section 1031(a)(2)(D) specifically prohibits the exchange of partnership interests.

Can a partnership qualify for a 1031 exchange?

The partners own interests in a partnership — and these partnership interests are considered personal property and do not qualify for 1031 exchange treatment. The IRS rules governing a 1031 exchange dictate that the entity selling the relinquished property must be the same entity taking title to the replacement property.

Can a 100% partnership qualify as a real property?

However, a 100% partnership or LLC interest will qualify as like-kind real property when sold by the Exchanger. Partnership may convert from a general to limited partnership or LLC during the exchange without impacting the 1031 Exchange. Same Owner for Relinquished and Replacement Property

Can a 1031 exchange defer income tax liabilities?

If a partner or group of partners disposes of their partnership interests they can not defer their income tax liabilities by completing a 1031 Exchange because interests in a partnership are personal property interests and can not be exchanged for an interest in real property.

When do you need to disclose 1031 exchange property?

The IRS requires disclosure when such a property distribution is made to another entity or to any partners as tenants in common. While the IRS hasn’t provided specific guidance, some advisors recommend a one-year holding period for a 1031 exchange property in support of the IRS’ intent for holding 1031 Exchange mandate.