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PRESERVING YOUR TAX BENEFITS: HOW TO DISSOLVE A PARTNERSHIP IN PREPARATION FOR A 1031 EXCHANGE
Not seeing eye-to-eye with your partners anymore? Proper planning is needed before a 1031 Exchange would allow you to go your separate ways!
Consult with a tax professional or attorney: Before dissolving the partnership, it is important to consult with a tax professional or attorney to understand the tax implications of the dissolution
and how to structure the partnership dissolution to meet the requirements of a 1031 exchange.
Review the partnership agreement: Review the partnership agreement to determine the process for dissolving the partnership, including any required notifications to partners and any provisions regarding the distribution of partnership assets.
Liquidate partnership assets: Liquidate partnership assets, including any real estate, in order to prepare for the 1031 exchange. The partnership should also settle any outstanding debts or liabilities.
Distribute assets: After profits and losses have been allocated, distribute the remaining assets to the partners according to the partnership agreement.
Create new entities: Each partner can use their share of the distributed assets to create new entities to participate in the 1031 exchange. Usually vesting as a TIC or tenants-in-common.
It is important to note that the dissolution of a partnership can be a complex and time-consuming process. It is important to plan ahead and consult with a qualified tax professional or attorney to ensure that the dissolution is structured properly and meets the requirements of a 1031 exchange. In many cases a dissolution may have to occur well in advance of a 1031 Exchange!