How TITLE is Held on Property during an Exchange

For Example:

• Husband relinquishes, then Husband must acquire
• Husband and Wife, as Trustees relinquish, then Husband and Wife, as Trustees must acquire
• ACME Corp relinquishes, then ACME Corp must acquire
• Johnson LLC relinquishes, then Johnson LLC must acquire
• PSC Partnership relinquishes, then PSC Partnership must acquire

Exchangers must anticipate these vesting or title issues as part of their advance planning for the exchange. Title issues are much easier to resolve before loan documents are on the closing table. It is important to consider business reasons, liability issues, and lender requirements when deciding whether to keep the vesting title on the replacement property.

Below is a typical example in favor of considering changing the vesting title of the relinquished property:

• Exchanger’s who dispose of relinquished property in one entity, such as a corporation, partnership or multi-member LLC and who want to acquire the replacement property in a different corporation or multi-member LLC for each replacement property may not do so within the exchange format.

In this case, it is best to change title on the original property before the exchange begins.

The Following changes in vesting usually do not destroy the integrity of the exchange:

• The Exchanger’s revocable living trust may acquire the replacement property in the Exchanger as an individual, as long as the trust entity is disregarded for Federal tax purposes.
• The Exchanger’s estate may complete the exchange after the Exchanger dies following the close of the sale of the relinquished property.
• The Exchanger may transfer relinquished property held as an individual and acquire replacement property titled in a single-member LLC or acquire multiple replacement properties in different single-member LLC’s. Single-member LLC’s are disregarded for Federal tax purposes under the “check-the-box” rules.
• In community property states, a husband and wife may exchange relinquished property held by them individually as community property for replacement property titled in a two-member LLC in which the husband and wife own 100% of the membership as community property, but only if they treat the business entity as disregarded entity.

AMBAR Financial Group does not offer legal or tax advice. AMBAR encourages clients and visitors to seek independent legal and tax advice from competent professionals to discuss their personal financial situations. Registered Representatives may only transact business in states where they are registered, or exempt from registration. Currently we have Representatives registered in: AL, AZ, CA, FL, MN, MO, PA, TX. If your resident state is not listed, please contact us at 408-379-6510. Under normal circumstances, securities licensing procedures for additional states may take 24-72 hours. We will not effect or attempt to effect securities transactions, or provide personalized investment advice to, or communicate directly with residents in a state in which a Representative is not registered.

Property photos shown here are being provided for educational purposes only, to illustrate the different property types available in the real estate market. These photos are not intended to represent any particular type of TIC offering nor are they intended to represent any current or future TIC offerings.