You found the perfect replacement investment property. After purchasing it, you successfully sold your relinquished property by setting up a Reverse 1031 Exchange. You have deferred your capital gains and depreciation recapture for 2019. However, a new LLC owns your replacement property. You established the LLC expressly for the reverse 1031 exchange. How can you transfer the replacement property into your name as the original exchange taxpayer?
First, it is essential to follow through and complete the rest of the process. This way, you own the replacement property. Once you complete your reverse exchange, your QI will forward you an assignment document. The assignment document assigns the LLC’s interest from the exchange accommodation titleholder (EAT) to you (the exchange taxpayer). The EAT and you will execute the assignment. This assignment document also assigns the ownership of the LLC’s property to you, the taxpayer. This assignment makes you the manager of the LLC and the owner of the replacement property.
Simultaneously, submit the appropriate amendment to the state about the LLC formation. Doing this ensures the state records you as the new member/owner/manager of the LLC. Once the LLC formation amendment has been processed and recorded, you can do one of the following:
- Keep the property in the name of the LLC and maintain the LLC. Typically, requirements to file an annual report and pay an annual fee exist.
- Have a deed prepared that transfers the LLC’s replacement property to you (or the taxpayer entity in place during the exchange).
- Ensure coverage if you transfer the property from the LLC to your name.
- Ask your insurance company to ensure coverage will continue under your name.
- Check with your loan officer (if applicable) to ensure that the transfer of title will not affect your loan terms or conditions.
Finally, once you have verified that the items listed above are not affected by the transfer via deed, your attorney may prepare the deed and record it. The property is now in your name (or the taxpayer entity during the exchange).
Are you just getting started? Complete this form to start a 1031 reverse exchange!