David and Tom Moore, the 1031 Exchange Brothers, are answering a frequently aske question: what happens when brothers and sisters want to buy each other out of a property? Most of the time, this situation comes up when the property is owned as a Limited Liability Company (LLC) or as Tenancy in Common (TIC). So, how do you navigate this? Let’s break it down.
The Basics of Ownership Structures
When siblings are involved, it’s crucial to understand how the property is titled. For example, if it is under an LLC or under TIC, there are specific considerations. Individuals usually ask questions about the time it takes and the results obtained from a partnership transaction. Let us take a look at these aspects one by one.
Partnership Transactions
Siblings who are considering the issue of transferring out of their partnership position should be aware that simply do this. A 1031 Exchange is an IRS tax provision that allows tax-deferred exchanges on the sale and purchase of investment properties only on real estate interests and not on partnership shares. So, in the case where the partnership solely controls real property, what they really own is shares of the partnership itself.
What Needs to Happen?
In order to implement a buyout, the siblings must initially dissolve the LLC. This involves a process where they would need to deed the property out to themselves. It’s not just a simple transaction; it requires careful planning and execution.
Understanding Related Parties
Another layer to consider is the concept of related parties. When siblings are involved, the IRS has specific rules that come into play. Transactions between related parties can be scrutinized, and there are regulations that dictate how these exchanges should be handled. It’s essential to consult with a qualified intermediary or tax professional to ensure compliance and to structure the deal correctly.
Key Takeaways
- When siblings want to buy each other out, it’s crucial to understand the ownership structure.
- A 1031 Exchange can only be executed on real property interests, not on partnership shares.
- Dissolving the LLC and deeding the property to the siblings is a necessary step.
- Be mindful of IRS regulations regarding related parties to avoid potential pitfalls.
Despite the seemingly complicated nature of sibling buyouts in property, with the right amount of knowledge and support, they can be totally manageable. Should you think about buying out or 1031 exchange, don’t hesitate to ask for help from an expert that can guide you through the process!
To stay up to date with our video content subscribe to our YouTube channel.
Whether looking for information on simple to complex 1031 issues, Cost Segregation, Life Insurance Contract Sales, DSTs or even Qualified Opportunity Zones you will find information on our channel.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
