1031 exchange or tax deferring?

[Robert Gailie]

Hello all! I am going to sign contracts on my first flip on tuesday. We did well and made big profits and the experience was incredible. Now I want to avoid paying taxes if possible. 

Do any of you more experienced flippers have any suggestions or advice on how to defer taxes? I have about 12k I will have to pay to taxes right now unless I find a way to not pay. 

I definatly will be buying another property which may be another flip or a multifamily buy, rehab, rent and hold. It really depends on what I can find on the market. Thank you all.

[Dave Foster]

@Robert Gailie, The biggest issue as you can see from the response on this thread is your use of the word "flip".  That word implies a common usage and describes a property that you bought with the primary intent of reselling.  That property does not qualify for 1031 treatment.

Property that qualifies for 1031 treatment is property that you buy with the intent to hold for productive use.  Your description of your intent to hold it as a rental could certainly be interpreted that way.  But you want to make sure you have as good a paper trail demonstrating that intent as possible.  Correspondence with your accountant.  A contract with a property management firm.  Advertisements for rent etc etc.  There is no statutory holding period that makes it qualify but in general the longer the better.  In your case you'll want to be able to show the extenuating circumstances that are making you sell now rather than holding as was your original intent.  Make sense?

It's not OK to buy it with the intent of reselling and then 1031 it.  It is OK to buy it with the intent of holding it for productive use and then change your mind and sell it and 1031.  The burden of proof will be on you.  Was this really an accident and your pattern is buy and hold?  Or do you have these "accidents" several times a year.  Your actions will demonstrate your intent.  But you definitely want to quit using the term flip if that's not what you're doing.