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Section 1031 Exchanges for Partnerships and Corporations: Divisions and Conversions to TIC and DST Structures to Protect Tax Deferral

Drop-and-Swap, Tax-Free Corporate Divisions, Partnership Promissory Notes

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, October 2, 2019

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers with a practical guide to the workings of Section 1031 like-kind exchanges in the aftermath of the 2017 tax reform legislation and based current best practices. The panel will detail the changes to 1031 treatment, discuss what assets may qualify as "real property" under the new rules, and describe strategies for partnerships and corporations holding real estate assets where a partner is seeking a tax-deferred exit from the partnership.


Like-kind exchanges of business property have always presented unique challenges for partnerships. Section 1031 explicitly excluded partnership interests from those assets eligible for a tax-deferred exchange; however, partnerships were able to engage in exchanges of qualifying investment assets. By limiting Section 1031 deferral benefits to exchanges of real property, 2017 tax reform has complicated matters for partnership entities seeking to structure 1031 exchanges, particularly where one or more of the members wants to exit the entity or is otherwise unwilling to participate in a like-kind exchange.

Partnerships have several options for achieving nonrecognition treatment of an exchange by former partners of undivided interests in real property previously owned in partnership form. Depending on the sequence of the transactions, partnerships can make a like-kind exchange using either a "drop-and-swap" or a "swap-and-drop" exchange, converting the partnership interest in the underlying real property into a tenancy in common or Delaware statutory trust. Partners may also separate their interests in multiple real estate entities on a tax-deferred basis by first consolidating commonly owned entities into a master limited liability company and subsequently liquidating that company via a "mixing bowl" structure.

Many closely held “legacy” corporations own real property, and as the interests in the corporation changes hands through generational transfers, the members often have differing views about management of property held by the corporation. Tax advisers working with such entities and their members must be aware of planning alternatives for such entities. The panel will discuss alternatives for such arrangements to do tax-free divisions with various cash-out alternatives.

Each of these exchange structures carries significant tax risk if the transaction is not carried out correctly. Tax advisers to partnerships and other closely held businesses must grasp the complex nonrecognition rules of Section 1031 and how they apply to partnership entities.

Listen as our experienced panel provides a practical guide to the challenges of using various entity-restructuring techniques to make Section 1031 tax deferral available to members of diverse ownership arrangements.



  1. Tax reform and the new real property requirement under IRC Section 1031
  2. Defining real property under Section 1031 and in other contexts
  3. Framework of 1031 exchanges
    1. Reverse exchanges
    2. Forward exchanges
  4. Overview of Section 1031 partnership asset exchanges
    1. Drop-and-swap transaction
    2. Mixing bowl transaction
    3. Tenants in common and DSTs
    4. Holding period risks
  5. Proximate tax-free corporate divisions


The panel will review these and other high priority issues:

  • Given the Section 1031 limitations imposed under the 2017 tax law, what kinds of property interests will qualify for Section 1031 treatment?
  • What is the role and what are the restrictions of the exchange facilitator?
  • Is there a "holding period requirement" under Section 1031?
  • Avoiding transaction mistakes that will accelerate recognition
  • Distinguishing between "drop-and-swap" and "swap-and-drop"
  • Recent decisions reinforcing drop-and-swap treatment
  • Availability and application of tax-free corporate restructuring alternatives


Borden, Bradley
Professor Bradley T. (Brad) Borden

Professor of Law
Brooklyn Law School

Professor Borden’s research, scholarship, and teaching focus on taxation of real property transactions and...  |  Read More

Brown, Craig
Craig Brown

Vice President and Regional Manager
Investment Property Exchange Services

Mr. Brown has overseen the facilitation of more than 5,000 real and personal property exchanges with total values in...  |  Read More

Keator, Todd
Todd D. Keator

Thompson & Knight

Mr. Keator represents clients in general tax matters including corporation, partnership, and LLC formation and...  |  Read More

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