Page 18AA —
COLORADO REAL ESTATE JOURNAL
— October 21-November 3, 2015
PROPERTY AVAILABLE
For Sale
For Lease
Wanted
office • industrial • retail • multifamily • land • medical office • hospitality • restaurants • senior housing & care
1031 Exchanges
F
rom time to time, indi-
vidual taxpayers or enti-
ties owning investment
property in Colorado may con-
sider making changes to their
ownership structure that can
affect how taxes are reported.
This article summarizes rules
relating to entities that may be
“disregarded” for purposes of
Internal Revenue Code Section
1031 and is designed to assist in
caseswhere the exchanger desires
to take title the replacement prop-
erty in a manner that is differ-
ent from title to the relinquished
property. In all cases, an exchang-
er should consult with his tax or
legal adviser to ensure that the
desired structure is acceptable for
IRC Section 1031 purposes. This
conversation should take place
well in advance of an anticipated
sale/1031 exchange.
n
General rules.
1. Virtually
any natural or legal person (indi-
vidual, corporation, partnership,
limited liability company, trust,
etc.) may do an IRC Section 1031
exchange.
2. The seller of the relinquished
property (generally as deter-
mined by the status of legal title)
must also be the buyer of the
replacement property, e.g., if John
Q. Public is on title to the relin-
quished property, then John Q.
Public must acquire title to the
replacement property.
Exception to Rule 2: If the trans-
feror of the relinquished property
or the transferee of the replace-
ment property is a “disregarded
entity” (see Treas. Reg. § 301.7701)
or the “owner” of a disregarded
entity, then the entity is treated as
if it does not exist and the owner
and the entity are, in effect, inter-
changeable as the exchanger, i.e.,
the entity may sell and the owner
may buy and
vice
versa.
For example,
if A owns 100
percent of the
interests in an
entity that is a
“disregarded
entity,” then
Amay sell the
relinquished
property and
the entity may
take title to the
replacement
property and
vice versa.
n
What entities are not dis-
regarded?
C (“regular”) corpo-
rations, S corporations, general
partnerships and limited partner-
ships.
The IRS has ruled that where
an otherwise nondisregarded
entity has two members under
local law, but one of the mem-
bers is a disregarded entity that
is owned by the other member,
the eligible entity is treated as
having only one member. Thus,
the entity cannot be a partnership
for tax purposes; it must be classi-
fied either as a disregarded entity
or as an association taxable as a
corporation (Rev. Rul. 2004-77,
2004-31 I.R.B. 119).
n
Limited liability companies.
LLCs are not disregarded except
in the following cases where the
LLC has not made an election
to be treated for tax purposes as
a corporation: 100 percent of the
interests are owned by a single
legal or natural person (PLRs
9751012; 9807013; 19911033) or
100 percent of the interests are
owned by husband and wife as
community property in a com-
munity property state (Rev. Proc.
2002-69, 2002-2 CB831).
The IRS has ruled that a two-
member LLC formed under Del-
aware law was disregarded for
§1031 exchange purposes where
all economic interests were held
by one member and the func-
tion of the second member was
solely to prevent a bankruptcy
filing or other violation of the
LLC's covenants with lenders
(PLR 199911033). The IRS has
ruled that the acquisition of all
the ownership interests held by
two different owners by a sin-
gle buyer in a single transaction
constituted an acquisition of the
underlying assets owned by the
LLC (Rev. Rul. 99-6, 1991-1 C.B
432).
As always, an exchanger
should consult with its tax/legal
adviser to discuss these owner-
ship entity issues and other tax
issues related to a possible 1031
exchange.
s
Erin Crowley
Colorado division
manager, Asset
Preservation Inc.,
Denver
opinion. Big changes are occur-
ring in that corridor.”
The seller acquired the prop-
erty for $2.5 million in 2006, he
said.
Carmon Hicks of JLL repre-
sented the buyer in the transac-
tion, which was part of a 1031
exchange for an office property.
Hicks said IW Products and
Linn Star Transfer are leasing the
former Goodyear space on one-
year terms until the ownership
decides if it is going to reposition
the property.
Other News
n
Tony Capra’s Bath House,
a bath and kitchen showroom,
and Tony Capra Plumbing &
Heating will move their head-
quarters and operations into a
40,296-square-foot industrial
building on 1.75 acres at 6300 E.
Evans Ave. in Denver.
Capra Investment Co.
pur-
chased the property from
L2A
Investment LLC
for $2.53 mil-
lion, or $62.66 per sf. The acquisi-
tion was part of a 1031 exchange
for Capra’s existing, 7,226-sf
building at 6750 S. Emporia St.
in Centennial.
Phil Yeddis
of
Unique Proper-
ties LLC-TCN Worldwide
said
Capra needed additional space
and wanted a property with vis-
ibility in an area generally south
and southeast of downtown.
“It was very, very challenging
finding something based upon
the location they wanted to be,”
he said, adding there is more
demand to acquire buildings
than there is inventory.
The Evans property, in fact,
wasn’t on the market, but it
turned out the owner was get-
ting ready to offer it for sale. “We
looked at it, jumped on it and
got it under contract and closed,”
said Yeddis.
The property has signage on
Evans, good access to Interstate
25 and 51 parking spaces, he
said. It also has 10 dock-high
doors, two interior racks and 13-
to 16-foot ceilings in the ware-
house. Capra will occupy about
25,000 sf and offer 16,000 sf for
lease.
Yeddis said Capra will com-
plete extensive capital improve-
ments to the building, including
adding glass to create an attrac-
tive showroom space.
Matt Lewan
of
Integrated
Property Services
represented
the seller in the transaction.
s
Industrial
The building at 4200 Jackson St. in Denver sold for $5.28 million.
