Will a 1031 exchange be honored by the IRS, California and Georgia if as a California resident I sell a Georgia property held in my Georgia single-member LLC and acquire a DST membership interest in my personal name?
A 1031 exchange, also known as a like-kind exchange, allows an investor to defer capital gains taxes on the sale of investment property by reinvesting the proceeds into a new property of like kind. The rules for a 1031 exchange are set by the IRS and are generally honored by states, including California and Georgia, but there are specific requirements that must be met. One key requirement is that both the relinquished property (the one you're selling) and the replacement property (the one you're buying) must be held for investment or for productive use in a trade or business. Additionally, the exchange must be between properties of like kind, which generally means real estate for real estate. Regarding the entities involved, the tax treatment of single-member LLCs can be complex. Typically, a single-member LLC is disregarded for federal tax purposes, meaning the IRS looks through the LLC and treats the sole member as the owner of the property. However, for a 1031 exchange, the IRS has specific rules about the entity that sells the relinquished property being the same entity that acquires the replacement property. In your case, if the Georgia property is held by your Georgia single-member LLC, and you want to acquire the replacement property (a DST membership interest) in your personal name, this could potentially be an issue. The IRS may not consider this a valid 1031 exchange if the same taxpayer (entity) does not acquire the replacement property. However, there are strategies that
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