Let’s address a very common question that arises about under what name you need to purchase your replacement property.
Let’s say you have an entity by the name of Shan & Um LLC, a Texas limited liability company and it owns property that you intend on selling as a relinquished property to 1031 exchange in Houston, Texas, meaning buy your replacement property in Houston. The same taxpayer rule states that, in this case, Shan & Um LLC will have to be the entity that purchases the replacement property.
At the end of the day, it is more so that the taxpayer is the same, meaning whom the tax liability will fall onto needs to be the same person. What you can do is form another entity to own the replacement property in Houston, what this entity’s name can be is Sunshine LLC. Shan & Um LLC will have to be the 100% member/manager of Sunshine LLC in order for the exchange to be successful because when it comes time to pay taxes, Sunshine LLC will be a pass-through entity in which the taxes will fall onto Shan & Um LLC.
Now let’s think of this situation in which there are two real estate investors, A and J, that, personally, own a property that they will sell and 1031 exchange into another property in Austin, Texas. A and J can sell their relinquished property under their personal names but when they have to close on the replacement property they can form two different entities in which one entity will have A as the only shareholder/manager and the other entity will have J as the only shareholder/manager and those two entities can be owners of the replacement property as “tenants in commons” and by going about this way, as an alternative to the above ones, you will still be able to satisfy the same taxpayer rule given that the tax liabilities will fall under the same taxpayers that owned the relinquished property.
As a disclaimer, it is important to consult with your CPA and/or tax attorney prior to engaging in a 1031 exchange given that everyone’s financial and tax situation is different.