1031 exchange to land development LLC - Posted by Kylex

Posted by BARRY on January 09, 2008 at 09:08:35:

I have a 20 lot estate subdivision in Nampa, Idaho, fully entitled and any looking for 1030 investors. We will be waiting to develope in approx 10months. Looking how to structure it and who to contact. Total $1,400,000.

1031 exchange to land development LLC - Posted by Kylex

Posted by Kylex on August 10, 2007 at 24:05:34:

I’m under crunch right now and need to figure out a solution really quickly.

We just sold our rental for $400k with $200k in debt and $200k cash waiting to be reinvested. The title was held in both of our names as husband and wife. I’m contemplating on a land development project where the developer pulls in investors as syndications and later sell to home builders or businesses. An LLC is formed for the project (for example, Autumn Business Park LLC), where each investor will be granted certain number of shares. Can I do 1031 into the LLC? The other complication is that the investments the developer pulls in are typically all cash so there’s no debt position. How do I satisfy the debt requirement of the 1031? Any options to make the 1031 exchange work?

My time is running out in about a month as the 45 day deadline is approaching. I will consult the QI company attorney, but would love to hear if this great community of investors have any creative ideas. Thanks in advance! - Kyle

Re: 1031 exchange to land development LLC - Posted by ray@lcorn

Posted by ray@lcorn on August 14, 2007 at 16:11:32:


You can’t exchange real estate for a partnership interest in an LLC. That’s non-qualified property.

If the deal were structured as a TIC (Tenants in Common) in which each investor receives title to a a deeded interest in the property, it would qualify. But this is a development deal and further complicates things.

The development aspect brings in the improvement exchange rules, which specifies levels of completion, qualified idicia of ownership during the construction period by an accomodator, and carries the same closing deadline of 180 days. That’s an advanced strategy and requires a level of expertise you won’t find except i specialized QI firms. The likelihood of getting all that done and construction complete on a deal that’s not yet funded is probably nil.

As to the debt requirement you’d have to assume some portion of the debt to avoid mortgage boot, which is taxable unless offset by cash boot added or given up in the exchange.

It appears this deal is not going to work for your exchange. To advise further I’d need to know what your goals are for a replacement property, e.g. return requirements, investment plan, management type, etc.


p.s. for an excellent library of articles about exchanges and exchange strategies, see Bill Exeter’s site at www.exeterco.com. The library link is http://exeterco.com/EEL_ArticlesPublicationTechnicalReference.aspx