While a limited liability company (“LLC”) is treated as a partnership for tax purposes, a single-member limited liability company (“SMLLC”) is not. Its existence is ignored for tax purposes and its income, expenses, and other tax attributes are reflected on the tax return of its sole member. For tax-free exchange purposes, the SMLLC can be an incredibly useful tool.
One often-used technique is to form an SMLLC to be used to hold replacement property in an exchange. Thus, when a taxpayer sells the relinquished property, the replacement property can be purchased by an SMLLC owned by the taxpayer. If the relinquished property is owned by tenants in common or by a husband and wife, each of the owners can form their own separate SMLLC and hold the replacement property as tenants in common.