Best method for two partners to divide a portfolio of properties (each its own LLC): a 1031 / like kind exchange, or better method?

If two partners own multiple properties together (each property its own LLC), and the partners decide to split the assets and go their separate ways, what is the best way to do this?

For example:

Property 1 LLC ($100k value: owner A 60%, owner B 40%) changes to owner A 100%

Property 2 LLC ($100k value: owner A 60%, owner B 40%) changes to owner A 100%

Property 3 LLC ($100k value: owner A 60%, owner B 40%) changes to owner B 100%

Can this be accomplished via a 1031 exchange, or other like kind exchange to avoid cap gains?  If a 1031 exchange is used, can money change hands to even the books (owner A would owe owner B to make fair), or does this invalidate a like kind exchange tool?

Is there a simpler method which would simply split the portfolio as agreed upon by the partners, but not incur taxes (since no gain is realized, although would allow for payments to even the books)?

I greatly appreciate your help.
[{"id": "ghivoio", "text": "Great question, I hope we get a good answer!", "replies": [], "depth": 1}, {"id": "ghiw6xz", "text": "You have a separate LLC for each property?", "replies": [{"id": "ghizdp9", "text": "This is common practice for liability protection, and is useful for separating finances between buildings.", "replies": [{"id": "ghizugi", "text": "What state are you from? In NC thats $200 annually.. or are you using the BS Wyoming loop?", "replies": [{"id": "ghj653l", "text": "&gt;In NC thats $200 annually\n\nWhich is nothing compared to losing all of your equity in the 3 properties op has vs losing equity in 1 of them in a lawsuit.", "replies": [], "depth": 4}, {"id": "ghk4p28", "text": "In CT it\u2019s $120/yr - which is entirely negligible when you\u2019re buying buildings with $40k/yr in gross income.\n\nSingle family\u2019s the LLC route is less common.", "replies": [{"id": "ghkd0ox", "text": "To all the comments, your rationale makes sense. Ive only done flips, so its a different gear for me.", "replies": [{"id": "ghkyplt", "text": "You should absolutely be doing each flip in it's own separate llc", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ghixnvq", "text": "Consult a qualified intermediary like Exeter or IPX.\n\nAn interest in real property is eligible for 1031 exchange.\n\nIf B wants to buy an exchange eligible property with the cash that A would pay to even things out, then it may make sense for A and B to go in together on that property and then do an exchange with all 4 properties.\n\nDon't forget to account for any transfer taxes if applicable in your state/county.", "replies": [], "depth": 1}, {"id": "ghiyq48", "text": "Are the properties being sold to third parties? If so, you can initiate a separate 1031 for each owner through a \"drop and swap.\" That is, Prop1 LLC deeds Property 1 to Owner A (60%) and Owner B (40%) as tenants in common. Then Owner A and B close the sale to the third party and their respective shares of the proceeds are paid to a Qualified Intermediaries until they separately close on replacement properties. You should consult with an attorney, accountant, and knowledgeable QI first.\n\nIf the properties are being retained, just with separate ownership, you should be able to treat it as the membership interest sales with the purchase prices equalling each of your tax basis in the LLC membership interests. That would result in no gain recognized so no cap gains tax. For example, assuming (i) each property is currently valued at $100k but was purchased for $50k (and that is still its basis) and (ii) each owner contributed their pro rata portion:\n\nOwner B sells its 40% interest in Prop1 LLC to Owner A for $20k (his/her basis in the 40% interest in Prop1 LLC)\n\nSame for Property 2\n\nOwner A sells its 60% interest in Prop3 LLC to Owner B for $30k (his/her basis in the 60% interest in Prop1 LLC)\n\nI did notice that the current asset values (Owner A having 60% of total assets) and ending values (Owner A having 66 2/3% of total assets) don't match. If there needs to be an adjustment for Owner A getting this extra percentage, you could do a modified version of the drop and swap with Owner A as the purchaser of Properties 1 and 2.", "replies": [{"id": "ghj3pqg", "text": "The buyout of interests in the LLCs is what you need, not a 1031. See a real estate/business attorney to draw up the contracts properly.", "replies": [{"id": "ghkhflu", "text": "I agree with this, you can't use a 1031 among related parties, only arm's length transactions.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ghj05o7", "text": "I'm assuming these are all non owner occupied. If not, then there's the capital gains exception if you lived there for 2 or 3 (I forget)of the last five years.  \n\nIf you're flipping to a 1031, you aren't exempt on capital gains; a 1031 allows you to flip all the rev into an accoutn and then you have a specified time to spend that money on a like exchange (same type of prop); but funds that aren't flipped into the new project ARE subject to capital gains.\n\nAlso, you might want to think about flipping funds into a QOZ qualified opp zone, if you have a bunch of capital gains about to hit.  It's initial setup is like a 1031 but with less regs.  If you keep your funds in the QOZ business or real estate for 7 years, you pay NO capital gains on ANY profits involved in the QOZ.  \n\nIf you're interested in the qoz thing, let me know, I have some insights into deals.\n\nEDIT: Sorry, didn't totally address this: \n&gt;Can this be accomplished via a 1031 exchange, or other like kind exchange to avoid cap gains? If a 1031 exchange is used, can money change hands to even the books (owner A would owe owner B to make fair), or does this invalidate a like kind exchange tool?\n\n  \nYes, selling your title claim is equivalent to a sale....A 1031 is like a  title company that you elect to hold funds, prior to selling your props, to flip the money into a like exchange(purchase).  You should call a local title company that works with investors and ask who they have for 1031s, and ask them.  And ask your accountant.  \n\nShort answer, the title company will work out all the escorw/sale/purchase stuff and then you'll end up with a couple settlement statements that you can roll those profits over to the 1031.", "replies": [{"id": "ghk6dg5", "text": "A couple corrections, in 2026 capital gains are recognized on the original gain that was deferred through investment in an oz.  Regardless of the investment year.  Elimination of additional gain only happens after holding for a minimum of 10 years.  If the funds are invested by the end of this year I believe there is a 10% bonus step up in basis on the gain invested though.  Due to the 2026 recognition deadline the beneficial window for investment in Op zones is quickly closing.  \n\nOverall I dont think Op zone makes sense for what this guy is trying to accomplish though.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ghj6noq", "text": "Speak to your accountant, but as long as you have some evidence that the total value of what each partner ends up with hasn't changed, you should be fine. Easiest way would be to just assign shares in each LLC. Best thing to do would have appraisals done to confirm what you're claiming.\n\nIf you're selling, maybe you can do the above and then 1031 as normal.\n\nIf you're planning on keeping the properties, make sure to check your loan docs. Major change in ownership usually puts you in default (not that they'll ever know/care).\n\nThis is 100% a question for a tax professional and not random people on a forum. The consequences of screwing up are large, especially if the other party in the transaction isn't on the same side of the table going forward.", "replies": [], "depth": 1}, {"id": "ghkoo1w", "text": "Need to understand the full org structure and tax consequences. Consult with a real estate attorney and tax attorney and/or accountant.", "replies": [], "depth": 1}]