rental property and LLC 1031 exchange

[chutki0700]

Hello 

I own a rental property in Texas.  want to sell it.

i have my LLC that does real estate investment.

can i sell my personal rental property to my own LLC.  then my LLC can sell the property in the market.

suppose i sell my property for 500K to my own LLC and then LLC can sell the property in the market.  since LLC bought this property for 500k there is no capital gain so there is no tax.

advise.

[Carl]

Assuming a single member LLC, the IRS considers your LLC to be a disregarded entity for tax purposes. Therefore you can not sell something you already own to yourself. Additionally, transferring ownership of the property to the LLC has it's own legal issues that have nothing to do with taxes, and will make absolutely no difference on the tax front.

[Mike9241]

not to mention that a title transfer would involve incurring some significant fees.   don't know if there's a mortgage on the property but if there is transfer can invoke the due on sale clause.

now if you're talking about a 1031 exchange the other part has to be unrelated and there are specific steps you have to take otherwise what you thought was a 1031 becomes completely taxable. 

[chutki0700]

Agree. But only f the LLC is a partnership. But if it’s a s corp then it is a separate entity. 
And it can buy property form me. 

basically I am looking how I can save on capital gain

[Critter-3]

@chutki0700 

What you are trying to do is called tax evasion which is a federal offense.   I highly recommend you seek local professional guidance to understand the intricate tax law you are trying to navigate.  Best you could do is push the gain forward using a 1031 exchange but it has to be to an unrelated party which an S-Corp you own would not be ... the IRS has strict rules in place to keep you from trying this kind of "tax avoidance" maneuver. 

[tagteam]

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@chutki0700 wrote:

....But if it’s a s corp then it is a separate entity. 
And it can buy property form me. 

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No, the related party rules are applicable. @Critter-3 is correct.

See https://www.law.cornell.edu/uscode/text/26/267

[chutki0700]

Appreciate 

[chutki0700]

Does it have to be the profit or the whole sale price including the existing loan amount for 1031 exchange

foe example I sell the property for 600k and the existing loan balance is 350.  So do I have invest 600k or 250k

[Critter-3]

All $600K ... the outstanding mortgage is immaterial ...  read the rules :  https://www.irs.gov/pub/irs-news/fs-08-18.pdf

[tagteam]

Simply put, it is fair market value for fair market value (if the FMV of your property is $600k, then the FMV of the replacement property needs to be at least $600k to avoid boot).

Again, you cannot do an exchange with a related party as has been noted previously.

Further, you should use a qualified intermediary if you intend to do a 1031 exchange. 

[chutki0700]

Any other suggestions on avoiding that huge tax 

[tagteam]

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@chutki0700 wrote:

Any other suggestions on avoiding that huge tax 

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There is no way to avoid the gain and recapture without a 1031 exchange (or perhaps selling another capital asset at a loss for a partial offset).

[chutki0700]

Can I buy another rental property with the sale of current property and sell it immediately after a year or so?

[tagteam]

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@chutki0700 wrote:

Can I buy another rental property with the sale of current property and sell it immediately after a year or so?

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That will not work if your objective is to delay recognition of gain on the current rental property. 

Again, there is really no way out of your stated scenario other than a properly executed 1031 exchange.

[chutki0700]

Agree.  Can I buy another rental property through 1031 exchange using a proper intermediate  1031 exchange company.  Then sell it off in 1 year?