Like Kind Exchange Step Up Basis Then Sale

[Randall]

Like kind exchange last year involving rental real estate.  Property received must be rented for parts of two years.  What if owner dies, children receive step up basis and want to sell.  Would the sale of the property negate the like kind exchange?  Or do children need to hold property and maintain it as a rental for two years so as not to negate the like kind exchange?

[ILLMAS]

"If you want to quickly sell inherited real estate, the case for a 1031 exchange weakens. If your goal is to unload the property within a few months, it may not appreciate much (or at all) in that time. The taxable profit above the stepped-up basis may be small or nonexistent, so capital gains tax may not be much of a concern. If you decide to hang onto the property for a couple of years, then the case for initiating a like-kind exchange grows stronger."  https://www.fergusonfinancialinc.com/

 

[Richcpaman]

Randall:

If the original owner did the 1031, and then died, the step up happens, and the 2 year look back closes.  And there is no amendment to the original filed return of the deceased, because the proper use did not continue for 2 years.  That time period closed due to the death.

Rich  

 

[Randall]

11 minutes ago, Richcpaman said:

Randall:

If the original owner did the 1031, and then died, the step up happens, and the 2 year look back closes.  And there is no amendment to the original filed return of the deceased, because the proper use did not continue for 2 years.  That time period closed due to the death.

Rich  

 

Rich,  another twist.  It was an LLC who owned the property and did the 1031.  Father owned 97.5% of LLC, children owned the other 2.5%  All rental activity profit was attributable to Father.  Would the LLC be held to the 2 year look back?

[Catherine]

This one is starting to look like a truly tangled mess.

 

[Gail in Virginia]

23 minutes ago, Catherine said:

This one is starting to look like a truly tangled mess.

 

The people that don't hang around in the off-season don't know what they miss in educational opportunities on this board.  I am getting really interested in this topic, and the one about donating the LLC interest.  These are not things that I see everyday in my little rural practice.

[Randall]

18 hours ago, Catherine said:

This one is starting to look like a truly tangled mess.

 

Yes, and even messier.  Because the father's interest in the LLC is a trust (grantor).  I didn't want them to do the 1031 (because of the father's age) but they said the current tenant wanted to buy the old property and they needed to do it.  The children want to sell the properties but are willing to wait out the two years on the 1031 property received.  I was trying to determine if they could sell it now and the death of the father and his LLC interest passing to the children would qualify to have step up basis, sell at lower gain and not have the two year look back.