1031 for a Rehab?

[Becky Nichols]

I'm new to the investment world and trying to learn everything I can from all you smart and educated people here (big thanks to @jonholdman)!

I went to a financial / flipping seminar and listened to this strategy of how to make $ with little to no taxes....

You rehab a house; file a 1031 exchange with IRS before closing, and purchase another house to rehab within 45 days.... after this rehab (or maybe a 3rd if needed) you then put those earnings into a buy & hold property by way of a trust (grandchildren, child, etc). This trust can't be taxed for 5 Generations. Now you are earning the monthly rental income from this property, and have avoided large taxes.

Has anyone done this, or know if it's legit?

http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

[Dave Toelkes]

@Becky Nichols

Holding period is irrelevant if the intent is to hold the property for resale. There is a Tax Court case where a speculator purchased vacant land, then immediately put it on the market to sell. When the listing agreement expired, the listing was extended, again, and again, and...

Finally, after ten years, a buyer came forward and purchased the property. The owner's long term capital gains tax treatment was denied and the sale was deemed to be sale of dealer realty (a flip) even though the holding period was more than ten years. The Tax Court upheld the IRS argument that the intent was always to flip the property since it remained continuously for sale during the entire holding period.