Holding Real Property in a Partnership or Multi-Member LLC

This is just a quick note about issues involved with property held in a general partnership, limited partnership, or multiple member limited liability company and the complex problems that can arise when the underlying partners want to dispose of the real estate and subsequently structure a 1031 Exchange.

It is important to note that the entity itself (i.e. the partnership) is the owner of the property, and therefore any 1031 Exchange structure should be completed at the entity level. The underlying partners do not own an interest in real estate. The partners own an interest in the partnership (partnership interest), which is personal property and not real property.

There are solutions for these scenarios, but it generally takes advanced, proactive planning in order to properly structure a solution. I would recommend that you speak with your legal and tax advisors today if you already own property in a partnership or other separate entity in order to discuss how to restructure your ownership position now before it becomese a problem at the time of actual disposition.