1031 exchange in Austin, TX

[Ross Trampler]

Hey all. My partner and I have a single family property under contract in Austin, TX. Our plan is to rehab and flip, then roll the profits into a 1031 to use on the next property and avoid capital gains tax for now. I was told by a CPA that I cannot do a 1031 on a quick fix/flip and that I would have to hold the property for a bit and rent it to properly perform the 1031.

I had always been under the impression I could do a 1031 in this situation. Thoughts?

[Lauren Speidel]

@Ross Trampler Your CPA would be correct. In order to qualify for 1031 exchange treatment there are a number of requirements that you must meet/follow. One of them is holding the property for a sufficient amount of time for rental, investment or use in a trade or business. The IRS does not state a specific timeframe that must be met and everyone has a different opinion. Some will recommend at least 12 months. In my personal opinion, 24 months is a very conservative hold time because it straddles three tax years and if audited, you can clearly show your intent to hold. Flips do not qualify for 1031 exchange treatment because your intent is to ultimately sell the property. If you were to hold the property for a couple years, then a 1031 may be a great option for you.