Partnerships, Taxes & 1031s


In the midst of tax season, strategies to minimize tax burdens seem to be a priority. Combining partnerships and 1031s are a hot topic and navigating the intricacies involved can be complex.

Partnerships (or LLCs) can utilize 1031 Exchanges to defer taxes. A model structure exists when the entire partnership wants to complete a tax deferred exchange. However, when one or more of the individual partners has different investment objectives, a need to strategically cooperate or to dissolve the partnership arises.

Model 1031 Exchange

Unconventional 1031 Exchange

For 1031 purposes, most partnership issues can be resolved with advanced planning. Some of the more common dissolution and cooperation techniques exist below:

  • Distribute an undivided interest
  • Liquidate partnership and distribute tenancy-in-common interests
  • “Drop and Swap” and “Swap and Drop”
  • Purchase the interest of a retiring partner
  • Sale of the Relinquished Property for cash and an installment note
  • Partnership division
  • Purchase of multiple properties by partnership
Continue reading more detailed information on the techniques highlighted above.

UPDATES & REMINDERS
  • If you deferred taxes via a 1031 Exchange in 2013, remember to file form 8824 with your tax return. IRS instructions and the form are available at www.irs.gov/pub/irs-pdf/i8824.pdf
  • If you are in a 1031 Exchange and sold your relinquished property in 2013, make sure that you don’t file your tax return until AFTER all of your replacement property has been purchased.