Need Advice on Selling a Flip Property

[Franky Juwana]

Ok, here's the situation, My partner and I put our money and bought a house to flip.

His share came from 1031 Exchange proceed and my share came from my own pocket. We almost at the end of the construction being done, we're excited to sell the house. 

After consulted with a Financial Adviser who understood with 1031 exchange subject, basically he said (I'm paraphrasing)  because Flipping isn't considered a investing by the IRS (if less than 1 year), the proceed cannot go to 1031 exchange for the next project unless if we hold it for 2 yrs or some say 1 year + 1 day, then we could do 1031 exchange.  Otherwise, My partner will have to pay the tax on 100% his capital + the gain on selling our current project. 

Being a landlord is not my intention at the moment, it has to be another way without have to pay a huge amount in taxes. 

Any advice or suggestion will be appreciated, we would like to continue the flipping venture down the road without needing to pay huge tax. 

is Self Direct IRA an option? what about lease options?

thank you all, 

[Dave Foster]

@Franky Juwana, the 1031 applies to property you purchased with the intent of holding for productive use.  There is no specific holding period.  the "one year and one day" thing was vogue for a bunch of years.  But not for any statutory reason - only for optics.  Two years is generally considered to be overly safe.  It truly is about your intent.  But your intent with this was obviously to flip.  So your friend probably shouldn't have used his 1031 to purchase it with you.  But as in life it's all GTA (good till audited) at this point.  

But going forward he's just digging  his potential hole deeper.  And now will have a string of 1031s within a year.  It may be time to pay the tax on this one.  Or actually hold it and put a renter in for a bit.