1031 from rental property to land development project/flipping?

Question

Hi, maybe this scenario discussed before.

i have rental property in Florida (via turn-key provider);

i am thinking to sell it to join land development project local in CA and if there's extra gain, i will invest the rest to my flipping business (just started).

is this scenario qualified for 1031, ? if not, any advice on how to minimize the capital gain tax as much as possible?

thank you in advance for all the responses.

regards

Indra

Dave Foster · Answer

Thanks for the shout out @Jay Hinrichs. There's a lot of questions still outstanding in your plan but I doubt this is something you can do without incurring all the deferred tax @Indra Tanudjaja.

If you 1031 from the turnkey you must replace that with actual real estate - if you're joining a development venture it is highly likely that you are not actually investing in real estate but are buying membership interest in an LP or LLC that owns real estate. That doesn't qualify. If it is structured as real estate then your intent must still be to hold the replacement property for productive use. If the development project is designed to improve and sell then again that would not qualify and you'll end up paying all the tax anyway.

Flipping does not qualify for 1031 treatment. So if this is the route you want to do you could either do a cash out refinance on the turn key to access cash for the short term investments. Or simply sell, bite the bulled on the tax and start a new course for your investing.

Jay Hinrichs · Answer

once you 1031 into your flipping business which I don't think you can do ( but maybe) and or the land development deal.. once you start to sell those proeprties those will be ordinary gain and you will pay recapture at that point @Dave Foster is a 1031 expert I bet he can give you the chapter and verse my response is just based on my simple understanding from the bleachers.

Dave Foster · Answer

Sorry @Indra Tanudjaja, the 1031 is real estate to real estate only.

Indra Tanudjaja · Answer

Cash out refinance sounds a good idea. I will start calling tomorrow. Thanks Dave.

This is unlikely, but can I do 1031 to my kids college funds (529)? Maybe some goes to 529, rest go to land development/flipping projects.

Thanks

1031 from rental property to land development project/flipping?

1031 from rental property to land development project/flipping?

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