When a partnership is selling property and some of the partners want to cash out and others want to reinvest, it can create complications with a 1031 exchange. There are a couple of reasons for this. First, under IRC § 1031(a)(2)(D), partnership interests are not exchangeable. Second, the taxpayer that sold the relinquished property must acquire the replacement property. For example, if a partnership sells the relinquished property, that same partnership must buy the replacement property. If individual partners buy the replacement property, it will not be a valid exchange.
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