Can a 1031 exchange work for whole sale profits

8 Replies

@Nick Pitre No, they don't qualify for Exchange treatment. The reason is because 1031 Exchanges are only meant for property that you've had the intent to hold. With wholesaling your plan is not to hold the property. It is to sell is as quickly as possible to a buyer and make a profit.

@Nick Pitre , The 1031 must start with the sale of actual real estate and it must be real estate that you have owned with the intent of holding for productive investment use. So wholesaling doesn't work on two levels. First you aren't selling real estate. You're making a commission. Second even if you did it as a double closing and you took title before deeding to the ultimate buyer you are not taking title with the intent of holding. You're taking title with the intent to sell. So no 1031.

So, bite the bullet and pay the taxes on the wholesaling profits.  And use the rest to buy that property that will become the start of your 1031 portolio.

Afraid not. For tax purposes, these transactions are not recognized as a sale of property, but rather as a trade of one investment in real property for another. Like-kind exchanges only apply to investment and business property and trades are fairly relaxed. Residential properties, inventory, securities, trust certificates, corporate stock, or partnership interests cannot be exchanged under Section 1031. Rather, by definition a like-kind real property exchange involves a trade of real properties that are the same in nature or character, even if they have different qualities. So, for example, two lots of the same approximate size, value, and location could be exchanged under Section 2031 even if one was improved and the other unimproved