1031 exchange, am I too late

[Peter Forrest]

I typically buy and hold, but in February this year, I bought a super run down property, and turned it around. When I looked at the numbers -  total all in cost & rental income VS. just selling it outright, it made way more sense to just sell. So I listed on August 15, and sold on September 15. Here are the numbers:

Purchase price - 130K

Reno cost - 100K

Sale price - 325K

Gross Profit - 95K

Net Profit - 70K

The net profit (70K) is after paying agents, fees and all others. I intend to definitely buy two more properties with the proceeds from this deal. Before doing that, I am looking at a huge tax bill. From preliminary research, my worst case scenario is -  Fed 35%, and 10% to DC - that's a giant 45% gone.  Question, can I still do a 1031 exchange ? If I go ahead and just buy the two houses and use up all the proceeds, will I still have to pay taxes to the government?

Thank you so much!!

[Bill Exeter]

Hi @Peter Forrest,

It is too late to structure a 1031 Exchange since you have closed on the sale of your relinquished property already.  The trigger is the closing.  It means that you have the right to the proceeds even if you have not received them yet.  So, once you have closed, whether the funds were disbursed or not disbursed, it is too late to set-up the 1031 Exchange because you have the right to the funds.  This is why the 1031 Exchange needs to be set-up prior to closing. 

The issue of rehabbing/flipping depends on your original intent.  The length of time that you have held the property does not mean that you will or will not qualify.  The issue is whether you can demonstrate under an audit that you did in fact have the intent to hold the property for rental, investment of business use.