Can you do a1031 exchange on a flip?

Question

I am new to this and have heard of the 1031 being used to avoid paying taxes!

Can you put profits from a flip, (which is usually considered capital gains), into a 1031 to avoid taxes?

Essentially this question doesn’t make sense, because the idea of flipping is for short term money now, etc, however I am asking if I can 1031 into a primary residence, thereby skipping tax season!?

Lol

Ashish Acharya · Answer

You can’t do 1031 on flips.

Even if it was in non flips (investment), you cant do 1031 to primary.

Vincent Incopero · Answer

@Eli Gilbert, a Flip is considered inventory, as opposed to an investment. Rules are clear that this is impermissible.

Dave Foster · Answer

@Eli Gilbert, Yah accurate yet news you didn't want to hear from @Ashish Acharya and @Vincent Incopero.  But if you can adjust your model you can make it work.  But you have to be willing to tame the adrenaline junkie flipping side of your personality.

Property that qualifies for 1031 treatment is property you purchased with the intent of holding for productive investment use.  Flips you purchase primarily to resell - no 1031.  There is no statutory holding period but how you can demonstrate your intent.  Most folks feel comfortable with anything more than a year.  But there always be reasons why a hold period of less than that (or more) might be allowable.

So to modify your flips to become 1031 compliant . you adjust the infamous Brrrr model - Instead of buying fixing and flipping.  You buy rehab, rent,and then re-evaluate to see whether you should 1031 or refi or hold or sell.  Legitimately expand your intent.  This will slow you down a bit at first.  But you can still set it up so you always have 2-3 in the hopper at one time.  And meanwhile your portfolio is becoming self sustaining all the while.

Eli Gilbert · Answer

@Dave Foster

Wow, very informative!

Great response!

Thank you!

I’ll look into this, I have to figure out my goals, finances and personality!

Lol

Eli Gilbert · Answer

@Vincent Incopero

Got it thanks

Eli Gilbert · Answer

@Ashish Acharya

Oh, ok thanks for response

Can you do a1031 exchange on a flip?

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