Disregarded Entities NOT Disregarded in State of New Hampshire

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New Hampshire does not recognize single member limited liability companies for tax deferred exchange purposes.  They treat each single member limited liability company or LLC as a separate and distinct entity for state income taxes.  This can significantly impede the tax deferred exchange transaction when you want to dispose of real property through a single member limited liability company and purchase your replacement real property through a new single member limited liability company. 

State of New Hampshire Issues Declaratory Ruling 7707 6-2002

The State of New Hampshire New Hampshire ruled under its New Hampshire Declaratory Ruling 7707 that if (1) a taxpayer/investor disposes of real estate held in a single member LLC or other entity, which is a disregarded entity for federal tax purposes (a disregarded entity), and (2) purchases real estate in another disregarded entity, the tax deferred exchange will fail for State of New Hampshire income taxes.

Disregarded Entities Treated as Separate and Distinct Legal Entities

Disregarded entities, including any and all single member LLCs, disregarded limited partnerships (LPs), and revocable grantor trusts doing business in the State of New Hampshire with gross income of $50,000 or more are required to report and pay business profits tax in the State of New Hampshire.

Because the business profits tax is assessed and taxed on an entity-by-entity basis, the State of New Hampshire takes the position that in order to structure and complete a tax-deferred exchange transaction, the same legal entity that disposed of the relinquished (sale) property must subsequently acquire the replacement property.

Not Disregarded Entity for New Hampshire Purposes

The bottomline here is that disregarded entities for federal tax purposes are not disregarded entities for New Hampshire state income tax purposes. 


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Bill Exeter

1031 Tax-Deferred Exchange Expert
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