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1031 with more owners

Technical topics regarding tax preparation.
21-Jul-2014 11:12am
Charlotte, NC
I have a client who is doing a 1031 exchange and he wants the new property to be one of two choices. The company is a 2 member LLC taxed as a partnership. The first property is able to be acquired with the proceeds from the sale of the old property and the cash in the LLC. The second property is substantially more expensive. The members are debating bringing in some investors to get the more expensive replacement property. I am not familiar with doing a 1031 and bringing in additional members.

It looks like they could do it as tenants in common but, the new investors would want the current LLC members to manage the whole property. From what I can find it does not seem to fly having one owner to manage the entire tenants in common property. It seems that this would create a new partnership.

The other option is for the new investors to buy into the LLC then the LLC does the 1031 using the extra cash from the investors. I cannot find any information on this scenario though. The LLC has already started the 1031 process and has sold the old property and the cash from the sale is with the QI. Does it create issues having the new LLC members buy in while the LLC is in the middle of the 1031?

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