Philly: buying cash deals /flips with 1031 exchange?

Question

I have primarily been involved in mostly cash transactions, as well as a good amount of hard money closings.

Can you sell your rehabbed property to buy more distressed property using 1031?

I have recently been in a wormhole of using a 1031 for investing purposes, spoken with a lawyer, title agent, accountant, and a broker. The answer I have seemed to found is yes and no, it seems to be a complicated process that potentially save an investor a great amount of money.

Concepts I think I understand are :

If the transactions are not of equal value you, you pay capital gains on unused profit.

45 days to identify deal of equal value / 180 days to purchase them.

Also can you just keep rolling over a 1031 exchange over and again?

Has any investor in Philly had success or knowledge using this as an investment strategy, that could share any info?

Thanks!

Joe

Dave Foster · Answer

@Joseph Wright I think the folks you've talked to have missed two big things.

1. 1031 is available only on property you purchased with the intent of holding for productive use. Property you bought primarily for resale (fix n flip) does not qualify. the standard is intent with no statutory holding period but most folks feel that more than a year is good unless justified by other circumstances.

2. PA does not recognize 1031 on the state level. So while you can still do a 1031 and defer federal capital gains you will still pay at the state level.

There are some timelines and yes you do have to reinvest all of the proceeds and purchase at least as much as you sold if you want to fully defer all tax. All in all, the 1031 still isn't a bad tool. It's just not as sweet in PA. And you want to be careful about your intent when buying and selling to make sure you'll qualify.

Joseph Wright · Answer

Thats exactly the type of information I am looking for, thank you so much.

Philly: buying cash deals /flips with 1031 exchange?

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