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Partnership interest and 1031 Exchanges

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Services for Real Estate Pros with Exeter 1031 Exchange Services

A. Partnership interests are not exchangeable

B. Partnerships can complete a 1031 exchange

C. Problems may occur when partners have different investment goals

i. Cash out of partnership

ii. Sell rather than exchange

iii. Solutions

1. Partnership dissolves under IRC Section 708

2. Partnership completes exchange; refinances property; distributes cash to

partners who do not want to participate in the exchange

3. Partnership completes exchange; reorganizes under co-tenancy ownership,

where two or more owners each hold an undivided fractional interest in

property; distributes property according to each co-tenant's pro-rata interest

4. Partnership reorganizes under co-tenancy ownership where each owner has

an undivided fractional interest in property; each co-owner pursues its

individual investment goals

a. Has the partner met the "held for investment" requirement?

5. A partnership may elect to submit a valid election under IRC Section 761(a)

to opt out of the application of Subchapter K

a. Must treat its partnership interests as interests in individual assets, as

distinguished from an interest in a partnership

b. Must be organized for investment purposes as opposed to business

purposes

c. Must not offer any auxiliary business services above and beyond those

customarily associated with the investment either directly or though an

agent

6. A taxpayer who disposes of property in a 1031 exchange and acquires

replacement property, which is then contributed to a partnership in exchange

for a partnership interest, may qualify for non-recognition treatment

Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Hey Steve,

Partnerships are probably the most challenging area within the 1031 exchange arena.  Great summary of what to look for.

Apr 23, 2008 04:34 PM
Steven Monk
Exeter 1031 Exchange Services - Bakersfield, CA
V. P., 1031 Exchange Expert

Thanks for your comments Bill,  I just had a client call with a partnership issue so I thought AR would like to see it.

Steve

Apr 23, 2008 04:54 PM