mboss310
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Location: Los Angeles |
1031 exchange and LLC |
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Hi, I'm a total newb and really could use some advice.
My wife and I invested in an LLC that bought an income property, and now two years later the LLC is going into a 1031 exchange, selling the old property and buying a new one. We have made some profit, and my wife and I need our share to put a down payment on a house. We only own a 6% stake in the LLC, but the manager of the LLC is refusing to let us out, saying the LLC has not been dissolved because of the exchange, even though the operating agreement says it dissolves once the property is sold.
I really just want my money back to buy a house and I'm pretty sure this is my legal right to do so. Am I wrong?
Any advice much appreciated! Thanks! -Mark
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Tue May 21, 2013 12:17 am |
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oldguy
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A 1031 exchange means that you trade one property for another, the sale/buy process is controlled by an intermediary and has to be done within a time limit. The transaction is not a taxable event, the tax liability of the old house is moved into the new house - ie, when the ownership is eventually closed then the tax will be due on the final sale of the fianal house.
Normally this is done by individual owners - so when they sell, or when their estate is closed, the tax is due. I don't know how it works when you enter into a 'club' of investers, is there a contract that specifies your rights, cancellations, etc?
Thankfully you only bought 6% - you may have signed up for a very long time, sorry.
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Tue May 21, 2013 1:27 am |
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mboss310
New Member
Cash: $ 0.85
Posts: 4
Joined: 21 May 2013
Location: Los Angeles |
Thanks for your Response Old guy!
The LLC has a operating agreement that clearly states the company will dissolve when the property is sold, but the llc manager is suggesting that the exchange is technically not a "sale," since the money has gone into a 1031 account. I think that is wrong, so I'm trying to figure out what the truth is. They have offered to buy us out, but at a fair market price that is significantly lower than the value of our stake. Ugh!
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Tue May 21, 2013 1:54 am |
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mboss310
New Member
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Location: Los Angeles |
Thanks Tim, but I'm not looking to sell my stake, whether at "fair market" value or not. I am saying that I think the LLC has technically been dissolved by the sale of the original property, so I am entitled to withdraw my money from the partnership. I do not wish to invest in the new property and do not want to be part of the 1031 exchange, but the manager is saying I don't have that option. Does that sound correct to you?
The "fair market" argument is not really the issue here.
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Tue May 21, 2013 5:03 am |
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oldguy
Senior Member
Cash: $ 751.85
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Location: arizona |
quote: I am saying that I think the LLC has technically been dissolved by the sale of the original property, so I am entitled to withdraw my money from the partnership.
No, the manager is correct, a '1031 exchange' (aka Strarker exchange) is just that, an exchange - nothing has been dissolved or recapitalized. You don't have the option to not participate in the 1031, it is a regulated trade at the LLC level. Presumably you could have voted against the trade prior to the decision - but you cannot split out your part of the trade after the event.
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Tue May 21, 2013 2:41 pm |
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mboss310
New Member
Cash: $ 0.85
Posts: 4
Joined: 21 May 2013
Location: Los Angeles |
Thanks oldguy and Tim, I see your point and I'm guessing you are right. I've done some research of my own and it seems the exchange is not a sale, like oldguy has said. Not the end of the world... But thanks for your time and advice!
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Wed May 22, 2013 3:54 am |
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