Using 10.31 funds to purchase a BRRRR is this possible?

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Hi @Nick Donato, I see a pm from you that I'll look at in a moment. But both @Linda Weygant and @Taylor L. are right on. Your scenario would be perfect. The only real question you've got is how long before you can do the "r"refinance. In the industry the joke used to be "long enough to put the pen down from signing closing papers and pick up a new pen for the refinance!!The IRS is very skittish and skeptical about refinances down right before a sale and 1031. They tend to see these as a way of accessing profit out of a 1031 exchange. However there's no such concern when done after a 1031. Because when you do a 1031 after a purchase you can't be seen as taking profit - you are accessing equity by borrowing against it and paying interest. So I wouldn't have a lot of concern over a BRRR with a refinance after ward. You're going to need 6 months anyway if you want to capture any forced appreciation.Great pla!!!

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Ah how our words come back to haunt us. @Alex Olson and @Michael Plaks, Our whole industry of QIs is guilty of this one :) During the period from 96-2008 the QI industry developed a cutsey mantra that played well in Peoria - "One year and One day". It was cute and easy to remember. And it' wasn't totally accurate. But I probably said it a few gajillion times myself.The reason why we did that didn't have a statutory reason. It was becuase:1. generally anything more than a year turns a gain into a long term capital gain (note - generally).2. One day more than a year meant that the property would be reported on two consecutive tax returns so optically it looked longer3. There were some seminal court cases early that used three different descriptors of what an appropriate holding period "could" be - Two tax years, two calendar years, and two years. It didn't take long for the attorneys in the room to figure out that this meant an appropriate holding period could be anything from 2 days (Dec 31 - Jan 1) up to 760 days (a full two years.So in their desire to get more tax dollars in the coffers the IRS opened the pandoras box of having to use "intent" as the guiding standard and how you demonstrate that intent. Most folks do feel very comfortable at anything more than a year. But there could always be circumstances where a hold of less than or more than a year is appropriate. My favorite client of 2019 sold a TN rental after owning it for one month. I challenged him and he showed me the contract where he agreed to honor the long term lease of the tenant. And when I asked him why he sold then he said it was because a bear took up residence at the garbage can and scared the tenant away! I'd love to see that challenged.On the flip side there was a pretty famous case round about 2012 I think where a developer had developed some lots to sell right before the big crash (not 1031). The market crashed and and he ended up owning the subdivision for like 8 or 9 years. And when he sold he tried to do a 1031. The IRS said no dice - because he had neglected to withdraw the sales listing. The properties had been for sale the entire time. So no intent to hold. No 1031.Truth can be stranger than fiction

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Incorrect in two areas.1. Holding a property for 1 year and 1 day does not automatically change its tax treatment. If it was a flip after 11 months, it is still a flip after 13 months. And if it's a flip, regardless of how long held, it won't qualify for capital gain treatment or for 1031. 1 year holding only matters IF the property is a rental/investment property and subject to capital gain treatment.2. 1031 does not come with a specific holding requirement. One year is a common rule of thumb. Spanning two calendar years is another common rule of thumb. Neither one is a formal legal requirement. The legal requirement is that it has to be an investment property. At least in theory, you could do a 1031 of an eligible investment property after owning it for just a few days. However, you will have hard time proving investment intent and won't be able to find an intermediary willing to dance with you. Bottom line: forget the 1 year rule. Focus on the investment intent, aka holding, as opposed to flipping.

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@Dave Foster, barely related question... is it possible to use the 1031 exchange when flipping? I have gotten the impression that it is not.

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@Michael Plaks I can't "bear" that thought!

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@Dave FosterWas it so difficult to say? Repeat after me: Michael was right. :)PS. How much did it cost you guys to rent that bear for a week?

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@Nick Donato great advice given, but just be aware of two things:1. You are transferring depreciation as part of the exchange, so that means less available depreciation on the new property to offset income. 2. If you do a cash out refinance, the interest on the cash-out portion is taxed based on use. You cannot claim interest deduction on the cash-out portion against the property you refinanced. If you use that cash for another investment, you could deduct against that new investment. If you use the cash for personal use, like taking it as profit, you cannot deduct any of the interest on the cash-out portion.Put these two things together and you end up with less depreciation and less interest expense, which are the two main deductions to reduce tax liability on rental property. This is why people are telling you to talk to a CPA. I am not saying don't do it, but realize how it affects the numbers before doing.

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Thanks everyone, I really appreciate the feedback! Sounds like we are a go with the strategy as long as I can find a BRRRR in my area worth pursuing@Paul Moore I'm pretty sure it doesn't work for flips as you have to own the property for over 1 year and 1 day. So If I upleg into a new property and sell it in less than one year then I'm gonna be paying the taxes back. Cheers and thanks again

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@Paul Moore, You're exactly right. when you are fixing and flipping your primary intent is the forced appreciation and sale of the property. The IRS vies those properties as inventory and when you sell you can't use the 1031 exchange. And you pay ordinary income tax on the gain from the sale - ouch!Investors who purchase property with intent of holding for productive use dont have a primary intent of selling. So they can do 1031 exchanges and if the property has been held for more than a year they will get capital gains rates on the sale if not doing a 1031. And this is what makes the BRRRR strategy so powerful. Someone like the pace of the fix n flip strategy but doesn't want to pay that tax. So instead of selling they refinance and take that refinance money to purchase their next property. They're able to keep up. pace while those refinanced properties provide income and season so they can be 1031'd also into another project. Stay in growth mode while paying less in tax. That's. a win win!

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@Nick DonatoI second (or fifth) what Da.ve Fos.ter said about your 10.31 pl.ans.Should not be a problem to refi shortly after the exchange.