Flipping and 1031 Exchanges

[Marshall Secord]

Hi BP, close to two years ago I quit my full time job and started flipping houses full time. I have not yet encountered a tax year where I've had to work through and claim income for flipping, but that is coming up in a couple months. I'm wondering if anybody has tax strategies they can share. I keep hearing about 1031 exchanges, but I'm finding that flips typically can't qualify because I need to hold the property as an investment for two years and then my profits from selling need to be held in a 3rd party account until the purchase of a new like kind property. Is this the case or is there some kind of work around? Additionally, I will be trying to deduct everything that I can as business expenses. Are there any other strategies or loop holes out there that can shield me from Uncle Sam?

[Dave Foster]

@Marshall Secord, Most folks feel comfortable with any holds more than a year.  But in either case it is your intent that matters most.  and a flippers intent is to resell not to hold for investment.  If that's your intent then you cannot do a 1031 exchange.  And if you can demonstrate your intent to hold, the 1031 must be set up so it is part of the sale.  

If you want to make 1031 work and mitigate those taxes you can modify your flipping calendar a little bit.  And instead of fixing and selling, put a renter in there for a bit.  While the renter is in you do a cash out refinance and use that money to buy your next flip opportunity.  This lets that first property sit for a while so you can demonstrate your intent to hold.  But it doesn't slow you up since you're using the cash out refi for your next acquisition.

There's ways to make 1031 work.