1031 and LLC

I’m getting ready to put some land up for sale and would like to know about 1031 exchanges. I am thinking of forming an LLC and want to know if I can roll the proceeds from the land sale into a 1031 under the name of the LLC without giving the title of the property to the LLC? Or does the LLC have to actually own the property? I would be reinvesting the sale money into income property, most likely apartments.

The exchange would be created under the name of the entity that is on title. If the LLC you form is a single-member LLC, you can have that single-member LLC hold title on the upleg property…at least in California. To be even less risky, I would want that downleg property title to have the LLC on title though.

In a properly structured 1031 exchange, the replacement property must be titled the same way as the relinquished property.

Dave’s right.

I also should’ve said that a single-member llc still has the same tax id as the person that opened the exchange. Only because of the same tax id is it permitted. What can be a little different, is with a husband and wife hold title under an entity. In both situations, I would not put an llc on title with the relinquished property because you’ll want/need to put that llc on title with the replacement property, and many lenders will not loan to an llc, thus having to put your own name on title on the replacement property.

Either way, it’d be a good idea to talk to your lender, and when you start the exchange, make every attempt to retain the entity you started it with.


My exchange facilitator does not agree with you. According to him, the name on title must be the same for the relinquished and for the replacement properties. Do you have a reference, perhaps in the tax code, or in a tax regulation, that supports your position that I can take to him.

I sure would like to be able to exchange property held in my own name for property to be acquired by my business entity. Please help me prove that my facilitator is just being too conservative.

I disagree with your facilitator and just wrote an opinion letter to that effect. SMLLC is truly disregarded by the IRS for ALL income tax purposes. The requirement to title in the same name is imposed by the facilitator, not the IRS. Some IRS people might challenge it, but that would go away once the nature of the LLC were explained to them.

The relevant citation:

§301.7701-3. Classification of certain business entities

(a) In general…and an eligible entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner…

In other words, the IRS doesn’t acknowledge the existence of the LLC, it’s as if the owner took the property in its name. To the extent that the intermediary or even the IRS says you should take title in your name to preserve a 1031 “safe harbor”, this deviation should not blow the safe harbor based on the above Regulation. If the intermediary is REALLY obstinate about this, simply transfer to SMLLC after the fact…the IRS doesn’t like that, but the courts have OK’ed it every time (e.g., Magnusen & Bolker cases).

John Hyre

John Hyre


Thank you John.