1031 to Development Investment as LP?
Can you do a 1031 exchange in which you sell a property then invest as an LP in a development deal?
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Sometimes. Some developers are willing to structure their development deal to allow you to 1031 into the land being developed.
Yes but it's not easy. Since 1031 owners have to control 100% of their "deal", it means structuring the ownership entity as a Tenancy in Common, which can be problematic for developers without a close relationship with their LPs.
TIC's are troublesome enough for stabilized deals, let alone development. I agree it would be very rare to see a TIC in a development deal.
I've worked on a TIC development deal, and it was a bear. Mind you, it gets more complex when you factor in that the TICs cannot own the "development" as far as I know. They can only own a real asset, the land, and then there is a whole ground lessor thing going on... it's a pain. Not worth it as a developer unless it is really friendly money
If you are willing to sign proportionally for debt on the deal (which generally goes against the invest as LP concept), this is much easier for IRS to agree with. Either way, this is not easy and developer better be a friend and really want your money
How about if you 1031’ed into the site that you were targeting for development and then contribute that to the developer as land equity? I think this would allow you to get around restrictions, but you would of course need to have a close relationship with the developer.
Not a lawyer, but that sounds logical. The only issue would be timing of the contribution of the land, as that could qualify as a sale (I guess that could be a matter of structuring). I think a 1031 can get disqualified if you don't hold the new exchange asset for a year + a day so it can qualify as long-term capital gain. As short-term, for trade property is not "like-kind" generally (again, there may be a way to make a case for this).
Still, this would require you getting a clear shot to buy the land, to contribute. Hell of a effort to make all this work, especially given that the partnership will might cause a sale and trigger recognition of gains before long anyway.
So, would it really be worth it? I mean, the value of 1031 is trading a long-term hold for a long-term hold. If you trading into a short-term hold, sorta defeats the purpose (but I guess you can "roll" the tax savings in, so that's valuable).
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