Real property should be deeded directly to the taxpayer.

The penalty for not acquiring any replacement property in the manner required by the regulations and within the 180 day period is that the taxpayer is deemed to have not acquired any replacement property.  The taxpayer loses exchange treatment as to each such property and must pay the tax on the gain resulting from the sale of the relinquished property.  In cases where the taxpayer acquires replacement property have a value (adjusted for closing costs) less than the value of the relinquished property (also as adjusted for closing costs), it is possible that the tax on a portion of the gain on the sale of the relinquished property may be deferred in the exchange.

Use of Limited Liability Company

The IRS has indicated in a number of Private Letter Rulings that a taxpayer may acquired replacement property through a limited liability company of which the taxpayer is the sole member.  The reasoning for these rulings is based upon single member LLCs being "disregarded entities" for tax purposes. unless the taxpayer elects otherwise (e.g. for the LLC to be treated as an association).  This means that tax events for single member LLCs that have not elected otherwise are deemed to be events for the single member.  Therefore, the acquisition of replacement property by such a single member LLC is treated as acquisition by the single member and, if the single member is the taxpayer conducting an exchange, the acquisition of the property should qualify for exchange treatment.  [Multiple member LLCs, in contrast, are not disregarded for tax purposes and are treated as partnerships.]

The acquisition of replacement properties through LLCs should be reviewed by your tax advisor or professional and note is made that Private Letter Rulings do not serve as precedent or guidance for taxpayers other than the taxpayers to whom the Rulings have been issued.