The Title Requirement and the Single Member LLC...

§1031 says I have to take title to the New Property the same as the Old. But if my name is on the old title, how do I protect my personal assets from liability that comes from a new rental property?

Individual Ownership into a Single Member LLC

As you know there are 6 basic rules to a 1031 exchange, and one of those rules says, "the name on the title of the Old Property has to be the same on title to the New Property." This means that if Fred Jones is on the title of the property he is selling, then "Fred Jones" must go on title to the new property he is purchasing.

What if Fred is purchasing a rental property, and wants to protect his personal assets from liability that comes from the rental property?

The Solution:
Fred can protect his personal assets and satisfy the title requirement of a 1031 exchange by forming a single member LLC. If the New Property is titled in an LLC with Fred as it's only member, then Fred still satisfies the 1031 exchange requirement because the LLC is a "disregarded entity" -- meaning the same tax return is treated as owning both the old property as well as the new property.

It is critical, CRITICAL, however, that Fred be the ONLY member of the LLC.

--The Experts