1031 exchanges Can I do this?

[Lillian Shi]

After I sold a flipping property ( single family residence), can I use the profit to purchase a rental property ? Is this qualify for 1031 exchange? Second question, may I use the flipping profit to purchase a rental property which is under my relative's name.

[Dave Foster]

@Brian J Peterson, @Lillian Shi, got it :)  Property eligible for the tax deferral of sec 1031 is property that you have purchased with the "intent" to ... "hold for productive use in business trade or for investment."  The reason that flipping does not qualify is that properties purchased in the normal sense of the word flipping are purchased primarily for resale not holding.  

However, there is no statutory holding period.  But if your exchange is ever examined your intent will be judged by your actions.  So the longer you own something the better.  Actually renting a property is good.  An unsolicited offer to buy your property demonstrates that you didn't intend to sell it.  Correspondence with your investors, partners, accountant, lenders help to strengthen your case as well.

Most conservative investors will try to hold their property for at least a year before 1031ing.  But it's all about your intent at the beginning and intent can change with circumstances.  Use the mirror test and see if you can tell yourself your rationale without laughing!  Accidents happen like a changing intent.  But usually those kinds of accidents don't happen 5 or 6 times in a year.