Using proceeds from sale to invest in already owned property?

Question

I know its a question to ask a professional near me. But I figured Id see what I can get on here. Im looking at buying a property with 2 houses on it in a couple weeks. Ive considered separating them and selling one right away. Can I use the proceeds from this, tax deferred, to invest in the rehab of the other house?

Also, how would I be charged tax on the deal if I split them up and just sold one before the county got around to assessing them? Would the county just take the assessment value of the whole property and split it 50/50 and say thats what each is worth?

I'm planning on keeping one as a short term rental and for what I'm paying, I could probably sell the other as-is and get the first house basically for free out of the deal.

Wayne Brooks · Answer

1031 would definitely not apply.....sold property must have been held for long term investment and sales proceeds must be used to Buy a new property.

Chris E. · Answer

Still havent decided what to do with the houses, just looking at all the options right now

Chris E. · Answer

The parcel is made up of 4 seperate lots, each house is on a double lot which is typical of the neighborhood they are in. I havent confirmed wether I can divide them or not, because either way I am extremely happy with the price Im paying for them. The reason they are together is because its had the same owner since the 60s. That owner lived in one and rented the other to family. The owner recently passed away and left the property to their son who lives in another state and didnt really want them to begin with. They do share a well, but are on city sewer. They offered to sell just one to me but I wanted to buy the pair.

Thomas S. · Answer

Have you confirmed that the municipality will approve you splitting the lot. .Usually these exist because they can not be split. The lot may be too small based on the present set back codes or they may share services such as septic.

Dave Foster · Answer

@Chris E., There's no statutory holding period.  But in general 1031s are used to defer gain from longer term holds and not as a hedge against business income created by fix n flips.  If your intent is primarily to resell then you're creating inventory not selling an investment.  And the 1031 would not be appropriate.

Chris E. · Answer

Ah ok, I was under the impression the 1031 was the way to beat the short term capitol gains tax

Using proceeds from sale to invest in already owned property?

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