1031 Exchange Solutions When Property Owned in a Partnership (Partnership Interests)

I started a brief mini-series of blog posts regarding the problems encountered by real estate investors when property that they intend to sell is owned by a general partnership or limited partnership. You might want to read the blog posts in order so that they make more sense.

The first blog post describes the complex income tax planning issues involved when a taxpayer is selling real property that is owned in a general partnership or limited partnership. Partnership ownership can significantly complicate any 1031 exchange strategy.

Strategies for Partnership Issues in a 1031 Exchange
There are a number of income tax planning strategies or structures that can be put into place that may solve the problems described in my last post. The best strategies that are virtually full proof ideally require 24 months to plan and implement in order to structure a safe 1031 tax deferred exchange transaction, and the rest will have various degrees of risk involved.

The various strategies and structures include, but are not limited to, the following, which will be discussed in greater detail in future posts:

• Maintain partnership intact and stay together for 1031 exchange purposes
• Drop and Swap (1031 exchange at the partner's level)
• Swap and Drop (1031 exchange at the partnership's level)
• Set-up subsidiary single member limited liability companies (SMLLCs)
• Structuring an installment sale note to buy out one or more of the partners
• Using Section 704(b), which involves special allocation of boot to certain partner(s)

There are many variations of the tax planning strategies and structured that I have briefly mentioned above. I will delve into great detail in future posts.