Tax implication on a sale of an apartment building?

[Tom Tran]

Hello fellow REA investors,

Can anyone help me answer the question below, I know this should be ask an Accountant, but I just need some general ideas of the tax implication. Here is the scenarios:

1. We bought an apt building for $300,000

2. 1 Year later we were able to sale it for $500,000

3. We did a 1031 exchange into a $2.1M apartment

4. We have it under contract for $2.5M in 3 months since we closed on the second apt.

We will plan to do another 1031 on the sale, but if you in case we are not able to find another property to exchange into, what will be the tax rate, is it going to be ordinary income? or will it be short term capital gain tax rate? or is it going to be 15% since its consider investment property? The title is an LLC entity with S-corp as filing type.

Thanks in advance for your info.

Tom.

[Carl Fischer]

@Tom Tran

It appears you are doing the sale within 3 months not over a year thus short term. Ordinary income and short term capital gain will be the same tax rate most likely.  Talk to the 1031 intermediary and accountant because I am not sure that short term "flipping" is justified in a 1031 scenario.  

The simple answer is you will be paying tax on approximately $500k. Get the 1031 intermediary and accountant to help --it will be worth it. 

A future consideration--use Self directed IRAs and  401ks whenever possible so you don't have these issues nor the timing constraints  of the 1031.