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Megan C
Megan C , Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16539
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I am in a partnership (corp) with someone and will soon be

Resolved Question:

I am in a partnership (corp) with someone and will soon be selling my half of the company to him. Can I do a 1031 and reinvest this money to reduce my taxes??
Submitted: 2 years ago.
Category: Finance
Expert:  Megan C replied 2 years ago.

Megan C :

Thank you for your question, and thanks for using JustAnswer.com

Megan C :

Section 1031 like kind exchanges are for business property.

Megan C :

Business property or investment property - not interests in a business

Megan C :

So, you could do a 1031 exchange on a rental house, or a vehicle but not an interest in your business.

Megan C :

You can read about the requirements of a like kind exchange, HERE.

Megan C :

It specifically states that partnership interests are not covered under section 1031.

Megan C :

Is there anything else that I could assist you with today? If not, then please rate my response as "excellent" so that I may receive credit for assisting you today

Customer: That confuses me. If I sell my half of the corp to him can I take my money that I make off of this sale and buy other rental property ?
Megan C :

No. You would have to trade one rental property for another rental property

Megan C :

The transaction you are entering into does not qualify for like kind exchange treatment.

Megan C :

Section 1031 would be like trading one car for another car; one rental property for another rental property, etc

Megan C :

Interests in Corporations do not qualify for this treatment.

Megan C :

Do you have any further questions?

Megan C :

Thanks again for your response and the opportunity to assist. Feel free to reply if you need further assistance. If not, please don't forget to rate as 'excellent' so that I may receive credit for assisting you today

Customer:

That's what I am asking, this is a mobile home park (rentals) I want to take my money that I get off the sale of my half, and reinvest into other rental property.

Megan C :

Do you own the assets, or does the corporation?

Customer:

It would also be set up as a corporation

Megan C :

No, you cannot do a 1031 exchange on your interest in a corporation.

Customer:

The corporation

Customer:

Do you know of any other way to defer the tax hit that we will be taking?

Megan C :

If you personally owned the assets, and swapped those assets for assets of a like kind you would be able to do a 1031 exchange. But not corporate interest

Megan C :

Unfortunately, there's little that could be done, unless you had other business losses

Customer:

What is the difference in corporate "interest" and profit?

Megan C :

Corporate interest is your ownership interest and profit is what you make after expenses

Customer:

So, would it be better not to sell out our half of the company and make the buyer open up under another corporation?

Megan C :

There's no way to do a 1031 exchange in this type of transaction.

Customer:

Ok then, I appreciate the help

Megan C :

You're welcome. Is there anything else I can assist you with today?

Customer:

No, that's it

Megan C :

If not, please rate as "excellent" so that I may receive credit for assisting you today

Customer:

will do

Megan C and other Finance Specialists are ready to help you
Expert:  Megan C replied 2 years ago.
Thanks, Debbie for your positive rating. Please come back and visit me any time you need a question answered. It was a pleasure working with you today.

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