Capital Gains Taxes How to defer or is it possible?

[Tanya McKinney]

For a lack of a better way of asking, what is the best way to avoid / delay the capital gains tax from the sale of a flip house?  When I spoke to my accountant she said that the 1031 was used as stated for an exchange of property for like property, but I have heard of people avoiding the Cap Gains tax by reinvesting in a larger investment? So buy a property for $50K, sell for $100, reinvest profit by purchase into a $100k property? Or did I misunderstand the process? 

[Bill Exeter]

Hi @Tanya McKinney, 

Flips, rehabs, developments, etc., do not qualify for 1031 Exchange treatment.  The key requirement is that you have the intent to buy and hold for rental, investment or business use.  Properties acquired to build, rehab, fix-up, and then sell are held for sale like inventory in a real estate business and do not qualify for 1031 Exchange treatment.  If you buy, rehab and fix-up and then hold as rental property it would qualify for 1031 Exchange treatment later.  

Most investors that structure 1031 Exchanges sell their relinquished property and then buy one replacement property of equal, or usually, greater value.  It is generally called trading equal or up in value.  

Like-kind is simple.  It means that you are selling real estate and must acquire real estate, so you will qualify under the like-kind definition.  It is the Qualified Use issue in your case.