1031 exchange or transfer to LLC
I have an investment property that I'm selling in Los Angeles and I'm not sure whether I should do a 1031 exchange or just transfer the property from my name into the name of the LLC then sell it to avoid higher capital gains and get income in the LLC. The issue though is that my lender says it can only give loans to me in my name so I'm not sure how I will get future mortgages if all my money is in the bank statements of my LLC. Or should I just do a 1031 exchange, also avoiding initial capital gains, and keeping the sale net proceeds in my name to get a future mortgage, but maybe taking the risk that I don't find a suitable new property to complete the exchange.
Any thoughts???
Don't know how much money you need to shelter but you have a pretty large time span to find your new properties. Once you close you have 45 days to id 3 potential properties. Don't have to close on them just id them. Then another 180 days to close on them. Seems like the best way to do it if the only reason you would transfer the money to your llc is to shelter taxes. Just make sure you consult a knowledgeable 1031 attorney because you don't want to do anything that will null the 1031 exchange. And there are alot of things that can null it. I'm sure you could partner with other investors on properties if you can't find anything on your own too.
Just my .02 cents
Having just done a 1031, here is what I found out:
You have exactly 180 days from the closing of your initial sale to close on the new property you will buy.
You have 45 days from the first closing to identify up to 3 properties to buy. From that point you have 135 days to close IE- you have only 180 days total.
To ID a property, you only have to create and date (our attorney suggested a notary seal as well) a document containing the legal address of the ID'd property, the purchase price and reference the 1031 exchange.
Your new property or properties, have to cost more than your gross proceed from the sale. Anything less and you will be taxed on the difference.
Check your state tax rules. Some states force you to pay tax on the initial sale proceed if you buy a property in another state to complete the 1031.
Best,
JD
thanks!!! my only fear though is that i won't be able to find a replacement property in 45 days from the close of escrow
JD is right on the money! Great job in resonding to the 1031 technical issues.
You can structure your transaction as a reverse 1031 exchange if you are concerned about finding a replacement property. We have been administering alot more of them due to the market conditions. It is very difficult to locate product in this market, so a reverse 1031 exchange allows you to take all the time you want to locate your replacement property. Once you have located it the exchange company acquires and hold title to it on your behalf and then you have 180 calendar days to sell your relinquished property.
The downside is that reverse exchanges take longer to structure, cost more in terms of exchange fees and closing costs, etc., but they give you a lot of flexibility in this type of market.
Hope this helps.
[addsig]
thanks - it may be worth the costs although i'm not sure if i can do a reverse since i don't have the funds to purchase my next investment property without funds from the current investment property i am selling