Taxes on Flips (1031 Exchange)

[Robert Iovine]

Can you utilize a 1031 (LKE) to avoid taxes on a flip if the home is in owned personally? Or does the home have to be owned by a company to take advantage of the a 1031?

[David M.]

@Robert Iovine

I stated by others, its depends on your intent.  If you intended to "flip it," even if you hold it for over 12 months (e.g. takes over 12 months to rehab), its still an ordinary transaction.  You need to actually intend to use it as a investment property to take advantage of it being, well, an investment.

Your thoughts on long term capital gains of the 0% and for $40k and $80k applies if you had really NO OTHER income.  For example, if you are single and held a job paying $40k (lets keep it simple...), any long term capital gains realized are taxed at 15%.  The TJCA it may be two sorts of tax tables, but its based off of "one income number."  Some people get it confused, as well, its a little confusing...

I'd like to point out that as an investment property, you also have to take depreciation.  Everybody "sells" it as a great non-cash tax benefit.  It is.  But, when you go to sell there is depreciation unrecapture on real property (well, there is some sort of depreciation recapture on anything) so you GENERALLY end up paying 25% on the amount depreciated.  People seem to skip over that minor issue.  This is where a 1031 exchanged is highly valued.  But, that still only kicks the can down the road since the 1031 only delays it, literally until you die...

So, always consult a qualified professional or two...