Section 1031 specifically does NOT allow the acquisition of a partnership interest as the replacement property for a 1031 exchange. In this ruling, the taxpayer did an exchange and wanted to acquire a property owned by a limited partnership.
Can you contribute 1031 property to a partnership?
A partnership can distribute real property to its partners so that the partners can exchange the property in a Sec. 1031 like-kind exchange; if the exchange is properly structured, some of the partners can trade their interests in the property distributed in Sec.
What if you don’t use all of your 1031 exchange?
When you don’t exchange all your proceeds, it’s called a “partial 1031 exchange.” The portion of the exchange proceeds that are not reinvested is called “boot,” and are subject to capital gains and depreciation recapture taxes. It’s important to note that boot can take different forms. Boot in either form is taxable.
Why are partnership interests excluded from 1031 exchange?
Partnership interests are specifically excluded from 1031 Exchange treatment under Section 1031 of the Internal Revenue Code. Partnership interests are personal property, and are not considered to be like kind to the acquisition of real estate, even though the underlying assets held within the partnership are in fact real property.
Can a 1031 be exchanged for real property?
The issue here is that the individual partners do not own an interest in real property; they own an interest in a partnership and will only be receiving a cash distribution from the partnership upon the close of the sale transaction. Partnership interests and/or distributions of cash can not be 1031 Exchanged.
Can a 1031 exchange defer income tax liabilities?
If a partner or group of partners disposes of their partnership interests they can not defer their income tax liabilities by completing a 1031 Exchange because interests in a partnership are personal property interests and can not be exchanged for an interest in real property.
What do you need to know about § 1031?
This is provided for under Internal Revenue Code §1031 and extensive case law. The price for this deferral right is compliance with very stringent requirements for qualifying exchanges. One of the requirements for a §1031 exchange is that the qualifying property be exchanged solely for like-kind property.
