I have a client who currently owns a house as an investment property, the house is currently rented and she collects rental income. She is looking to lease a space to start her restaurant, the lease terms are 5yr lease with option to buy in 3 years. She wants to sell the house, lease the restaurant space, and use the proceeds from the sale of the house to make improvements to the restaurant property. For the restaurant, she has registered an LLC wherein she and her husband are equal members and she is planning to file their taxes as an S Corporation. Can she do this via 1031 Exchange to defer the taxes?
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No. A leasehold interest is considered "like-kind" to fee simple real estate only if the lease term, including renewal options, is 30 years or longer. If you do a Google search for "leasehold improvements and ยง1031 exchange," you will get many hits.Roland Slugg
"I do what I can." -
I think the property also has to be titled the same. So, rental property in her name cannot be exchanged for commercial property in the name of an S-corporation, even if she finds a like-kind property. Do research the lead you received above.Comment
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