Quick 1031 Exchange Question

[Account Closed]

Purchase price $600k

Rehab: $100k

Sale price $800k

Gain: $100K

Is it possible to take the $100k Gain & buy a $100K property cash w/ 1031 exchange?

[Bill Exeter]

It sounds like this is a rehab/flip, so it will not qualify for 1031 Exchange treatment. You have to have the intent to hold for investment. Rehabs/flips are held for sale, not investment, and do not qualify for 1031 Exchange treatment.

Also, to defer all of your taxes you have to trade equal or up in value based on the net sales price of your relinquished property. If you only reinvest $100K, you would be trading so far down in value that you would recognize all of your capital gain and not defer any of your gain. Cost basis is not prorated when you trade down, so the amount that you trade down by will be all allocated to you taxable gain. In this case, you are trading so far down in value that you would pay all of your taxes.