Screwed up 1031 exchange

6 Replies

Having just completed a successful flip, I was too eager to close and move on to the next property.

In my eagerness (stupidity/sloppiness) I did not file paperwork for 1031. So while I am in the process of buying the next property, do I have any good options? Anything else I can do to make up for my mistake?

Yeah, a flip doesn’t qualify for a 1031 anyway.  Otherwise, once a sale closes and money is in escrow without the QI in place, it’s too late.

@Jarrod Kohl , The issue isn't the type of property. Any kind of real estate qualifies. The qualifier is your intent. If you purchased the property with the intent of flipping it does not qualify for a 1031 exchange. Only property you purchase with the intent to hold for productive use qualifies.

But as you identified, even if this really was a property you intended to hold and not a true flip you cannot DIY a 1031.  You have to use the services of a qualified intermediary.  They have to be in place prior to the closing of the sale.  And you cannot touch the proceeds from the sale during the process.  Without those in place - no 1031.  

So in retrospect you really haven't lost anything.  You'll just pay the tax you normally would have.  And you can't get taxed unless you make money.  So you've got that going for you too.

An opportunity fund or zone could afford you the opportunity to still defer the tax.