Two partners own an LLC and LLC owns a Real Estate prop. that was providing a passive income from the tenants for the last 3 years. There is no debt and we want to conduct a 1031 exchange but want to dissolve the LLC because the new property is 3x worth the current and the financing bank does not work with LLCs(cannot go around this because the financing is compliant due to religious reasons). We will dissolve the LLC and establish a Tenancy-in-Common then sell the current property and then purchase the new property as TIC(with both investors on the deed). One of the partners will be living in it and paying a profit percentage to the to non-living partner. Will this TIC and strategy pass the 1031 exchange? We want to utilize the capital gains and transfer it into the new property. Secondly, let's suppose the IRS audits our little portfolio and says that our strategy violates 1031 exchange rules. Will we be charged capital gains tax even if the combined income of the respective partners' is below $75,000? I read on IRS website that "...However, for most taxpayers a zero or 15 percent rate will apply." Am I on the right track? Will we have to get a lawyer? We can't really afford it?
I can't imagine doing a 1031 exchange without legal counsel
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Apparently, I was not clear enough when you called my office yesterday. You still posted your original question. Good luck. Zaher Fallahi, Tax Attorney, CPA, MBA, MS.
1031 Exchanges are complicated, precise transactions and you've complicated it with a proposed LLC dissolution and TIC arrangement. You should retain an experienced Business Attorney with expertise in 1031 exchanges.
The foregoing discussion does not establish an attorney-client relationship, is qualified by the limited facts presented above, and should not be relied upon as legal advice. To obtain definitive legal advice upon which one can rely necessitates retaining an attorney who is qualified in this particular area of the law.
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