Partnership Interests Are Excluded From 1031 Exchange
Note: Opportunity Zone Qualified Investment projects when available are often better then doing a 1031.
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 real property.
Partnership interests and/or distributions of cash cannot be 1031 Exchanged. Real estate must be exchanged for other investment real estate.
Potential solutions are available depending on the goals and objectives of the investors
Having the propertry held in co-tenancy ownership where each owner has an undivided fractional interest in property then allowing each co-owner to pursue its own individual investment goals. The tenants-in-common should hold the replacement property for a sufficient length of time in order to prove the intent to hold the replacement property as rental or investment property in order to qualify for 1031 Exchange treatment (holding period of 24 months or more is recommended given the changes to IRS From 1065).
For Example: If an investor wanting to do a Mobile Home Park investment using a 1031 exchange, and the amount of dollars to be invested is large enough to fund the equity part of the development ($1,000,000 or more) The investment could need to be structured to accommodate the IRS rules.
The new development LLC is set up with the property held in co-tenancy. Details would need to be worked out with advice of legal counsel, but it could be done.
For Example: If you want to develop a park and own it yourself I could act as your consultant on the project.
If you are interested in pursuing this type of structure, please contact me
Jim Glasgow 210-413-7230