Hear me out.... we have a friend that is considering this plan & we've been trying to think it thru.

Basically, I think this is what he's thinking:

Selling acreage they bought years ago, so they are making a really, really great profit on it - a few hundred grand. They already have an LLC. His goal - like all of us - is to avoid the fees on a 1031 & avoid the capital gains.

He wants to give the property to his LLC and have the LLC sell it to avoid 1031 fees/hassle PLUS he thinks there will be no cap gain.

Is he correct to assume that when he gives it to the LLC that it transfers at the sales price as the value (not his original purchase price) - then when it sells for that price there is no cap gain? The full sales prices is then in the LLC to use?

Where does that gain go? Can it be erased by gifting it like this?

So the LLC would have to pay cap gains on the full amount of the profit?

I just don't see how his plan could work.

Why not just take a cash out loan on the property and use the cash for other items?

You get the benefit of controlling the asset further, continued appreciation and the cash out proceeds are tax free since it's a loan.

Another potential strategy - UPREITS (https://abnicholas.com/what-is-an-upreit/) but this can be as much if not more headache then a 1031 exchange.

Interesting plan that makes sense. He doesn't need the money for anything & is at a point where they are downsizing pre-retirement. They are keeping their house in town here & have recently bought some land & a graeat house in CO for summers. They just want less to take care of.

schwack schwack said:

---

Interesting plan that makes sense. He doesn't need the money for anything & is at a point where they are downsizing pre-retirement. They are keeping their house in town here & have recently bought some land & a graeat house in CO for summers. They just want less to take care of.

---

I know many of older folks who just refinance at 50% LTV every 10 years when their note balloons cause they don't want cap gains but want proceeds. But then again, these are usually income producing apartments so it's a different boat kinda.

What's the typical fee on a 1031 ?

I assume this LLC is wholly owned by him and his spouse. The following remarks bear that assumption.

An LLC wholly owned by a couple is considered a disregarded entity by the IRS. Its a limited liability company and its purpose is to limit the liability of the owner. The profits/losses all pass through as though like a sole proprietorship. So your LLC could make 400k profits that year, pass it from the entity to the owners, and protect your investment from having a fat sum of cash that people could sue for. The IRS doesn't care about who is getting protected from liability, they just see your 400k profits they want a piece of.

I don't know how he funds his llc with that house asset without declaring some kind of fair market value asset appraisal.

Thank you.

I just completed a 1031 exchange on a piece of property. It was not a hassle and the fees were straight forward. The fees were around $1000/. I deferred $60,000 in gains.

You can gift property to TAMU through the Texas A&M Foundation.
https://www.txamfoundation.com/How-to-Give/Real-Estate.aspx

Holler at Tim Walton '90 and he can show you ways the Foundation can hold your real estate and pay you back.

Is he too late on the property in CO to do a reverse 1031 exchange?

Yes. Bought it over a year ago.

A family member of mine represents a 1031 intermediary and the fees can be less than $1000 with them. I believe closer to $750 the last I checked. Just FYI.

He could purchase a piece of property in an opportunity zone with the gains on the sale. If he doesn't mind waiting 10 years the tax obligation on the original gain will be eliminated, and he will also owe zero tax on any appreciation of the property. Just like anything else, the devil is in the details...