You found the perfect replacement investment property, purchased it and then successfully sold your relinquished property by setting up a Reverse Exchange. You have deferred your capital gains and depreciation recapture for 2019. However, your replacement property is owned by a new LLC set up specifically for the reverse exchange – how can you transfer the new replacement property into your name as the original taxpayer doing the exchange?
It is important to follow through and complete the rest of the process so that you actually own the replacement property. Your exchange company will forward you an assignment document that assigns the interest in the LLC from the exchange accommodation titleholder (EAT) to you (or the entity that was the taxpayer for the exchange). The EAT and you will execute the assignment. This assignment of membership interest also assigns the ownership of the property held by the LLC to you, the taxpayer. This makes you the manager of the LLC and the owner of the replacement property.
At the same time, you will need to submit the appropriate amendment to the state that the LLC was formed to make sure they record you as the new member/owner/manager of the LLC. Once this has been processed and recorded you can do one of the following:
- Keep the property in the name of the LLC and maintain the LLC – typically, you will be required to file an annual report and pay an annual fee
- Have a deed prepared that transfers the replacement property from the LLC to you (or the entity that was the taxpayer for the exchange).
- Check your title insurance and make sure that you will be covered if you transfer the property from the LLC to your name
- Check with your insurance company to make sure that your coverage will continue under your name
- Check with your loan officer (if applicable) to ensure that the transfer of title will not affect your loan terms or conditions
Once you have verified that the items listed above are not affected by the transfer via deed, your attorney may prepare the deed and record it. The property is now in your name (or the entity that was the taxpayer for the exchange).
Complete this form to get started with your reverse exchange: https://www.midlandtrust.com/1031-exchange-investors/request-form/