Advice for 1031 Exchange Qualified Intermediary

8 Replies

Hi Everyone, 

I want to do a 1031 Exchange for a recent investment. I invested $50 K in a fix and flip last year, and it is about to sell in a couple of weeks, with a profit of $10K -$15k. I want to rollover the principal and profit into another fix and flip starting in another month. This is my first time doing 1031 Exchange and I am not sure of exactly how to set it up. I read that you need a Qualified Intermediary for this transaction. Does anyone have a recommendation for a good QI in the Linden/ Union County Area that charges reasonable rates ? Also do I need to use a QI for this to be a 1031 Exchange?  Can my Accountant,  RE Agent or Lawyer do the necessary paperwork ?

This is my first time and I am not sure how exactly it needs to be done, and if it would be worth it to do it vs paying the taxes. Any advice on this would be greatly appreciated. 

Thanks, 

Altaf

Hi Alec, 

I am just one of the investors in this investment project. The project was actually done by someone else, we just invested money for the cost of the project. The duration of the project was 9 months. 

Would this still not qualify for the 1031 Exchange as we paid for the cost of the investment property ?

@Altaf Essani "investors in this investment project"...is this project an LLC or something?

@Altaf Essani Either way (LLC or no LLC), sounds like the answer would be "no" based on the nature of the deal.

The only properties that are available for 1031 exchange are those that were held for income production/investment (ie - a rental).

I know what you're about to say - "We bought this property as an investment!!!"

Yes, but the IRS doesn't see it that way.  What you bought was a piece of inventory.  The IRS does not care if you buy a house, fix it up and sell it, or buy bread, bologna and mustard and make a sandwich.  It's the exact same business model to them and you can no more 1031 a flip than you can a sandwich.

@Linda Weygant

so what is the proper way if one wants to flip a property and transfer the profits to another?

should one ran the flip under an LLC? or, how do people flip properties and keep taxes in mind?

Originally posted by @Khalid Hasnaoui :

@Linda Weygant

so what is the proper way if one wants to flip a property and transfer the profits to another?

should one ran the flip under an LLC? or, how do people flip properties and keep taxes in mind?

Most of what you can do to *minimize* (not avoid) the taxes should have been done at entity setup.  There's very little you can do now to shelter the current house from taxes.

Most people flip a house, pay the tax, then buy the next one and move on.

Savvy folks can employ all kinds of strategies such as organizing as an S-Corp (if that makes sense for their scenario - it doesn't always;, maxxing out a Solo401k set up through the flipping compan;, hiring their childre;, lending money to the project for passive income, rather than as an equity partner and having to pay Self Employment taxes at all.

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