1031 Tax Exchange on flip???

Question

Ok so I have not gotten into my own flipping yet but am soon, I only am wholesaling at the moment. My question is should you use a 1031 exchange on the profit from a flip or just go ahead with the capital gains tax?  And also what if for example you make 20k profit, can you use 10k through the 1031 exchange to defer the taxes and just pay the capital gains on the other 10k? Would it even make sense to do this? I know there may be other specifics here just trying to understand better this. Thank you.

David Krulac · Answer

@Shalan Winter

Dealer property or property held as inventory are not eligible for Section 1031 exchanges.

Normally a tax free Section 1031 exchange would be for a property held for more than a year, but there could be exceptions that are held for less time.

A buy and hold, a property that you rented for some time like more than a year would all be good candidates for 1031.

A very good candidate would be a property that you held for a very long time and have lots of appreciated value.

Shalan Winter · Answer

Ahhhhh okay I see, thank you all for the responses.

Steve Babiak · Answer

Your question has been asked and answered numerous times on the BP forums already, so a search will give you more detailed discussions. As @Wayne Brooks has already stated, what you described is not eligible for a 1031 exchange.

Wayne Brooks · Answer

Profit from a flip is ordinary income, not cap gains and not eligible for a 1031.

Shalan Winter · Answer

Hopefully those questions made sense. Basically the second part was just asking if you can split the profit to use half to put back into an investment via 1031 and save the other half or use for whatever.

1031 Tax Exchange on flip???

Most Popular Reply