How to handle 1031 exchange

Question

I’m in process of filing my 2018.  I’ve done few flips last year and put majority of what I made into the next flip.  All have been cash transactions.   I asked my CPA about capital gains since I’ve put most back into more properties to flip.  She said I need to talk to a 1031 agent.

Is the 1031 exchange process usually handled through Cpa?

If so should I just let the Cpa handle taxes and provide the purchase and sale info and file a certain form?

Thanks for any info!

Dave Foster · Answer

@Sam P. Sorry to be the bearer of bad news but the 1031's not going to work for you.  For a couple of reasons.

1. Property that is eligible for 1031 exchanges is property you have purchased with the intent to hold for productive use.  Property you purchased with the primary intent of resale (fix n flips) do not qualify for 1031 treatment.

2. In order to do a 1031 you must use the services of a qualified intermediary.  And the qualified intermediary must be in place prior to the closing of the sale of the property.  the 1031 must be documented on all closing statements starting with the sale.  And you cannot have actual or constructive receipt of the proceeds.  Your selling closing statements don't reflect the QI being involved and you touched the money.   So no 1031 available.  It can't be postdated.

If you had done a proper 1031 using a qualified intermediary then your CPA would file a form 8824 with your taxes to reflect the non-recognition of gain because of the 1031.  This form would have transferred the gain from the old property into the new property and set up the new depreciation schedules.

It's really surprising that your CPA didn't know this.  I would be concerned.

Bill B. · Answer

@Sam P.

I agree with Dave here. I can’t imagine a CPA not knowing this. Not good, not at all. Even worse, suggesting it, before spending 5 minutes on google to research it