What are the rules of the 1031exchange?

Tax, SDIRAs & Cost Segregation
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What are the rules of the 1031exchange?

Jeffery P.
Member since 2021 · 11 posts · 9 votes

Good day my fellow investors. Would anyone have advice or insight on 1031 exchange policies? Scenario: Acquired a rental condominium 12/21. Placing it on the market 01/22. I would like to take the profits and purchase vacant land to be used eventually as Home/Airbnb. Is a 1031 exchange even possible in this scenario? If not what other creative options are there to not get crushed with STCG tax? Thanks!

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Alex Olson
Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
4y

@Jeffery P. Might be hard to pull off. Factors that may help - sold off market, showing rental history of the purchase before and after, if you have a history of buying long term rentals. Other than that @Dave Foster can hop in here and give his opinion. 

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  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    4y

    What was your intent when you bought the rental? Flip it?

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  • Jeffery P.
    OP
    Member since 2021 · 11 posts · 9 votes
    4y

    Originally a buy and hold (rental).  However, there was money in the buy so looking to trade up for a lot.

    0Reply
  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    4y

    Any other RE activities? If so what is their character.

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  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    4y

    @Jeffery P. Might be hard to pull off. Factors that may help - sold off market, showing rental history of the purchase before and after, if you have a history of buying long term rentals. Other than that @Dave Foster can hop in here and give his opinion. 

    2Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    4y

    @Jeffery P., yeah, making the case that you intended to hold this for productive investment use might be tough.  The IRS might find it hard to believe that the value of the condo surprised you.  But that's not totally unheard of.  So other things might make your case stronger such as your normal practice, the actual amount of crazy that you were offered, things like that.

    the second part of using the proceeds to buy vacant land is fine.  Your only hitch is deciding if you qualify to do a 1031 on this sale.

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  • Jeffery P.
    OP
    Member since 2021 · 11 posts · 9 votes
    4y

    Thank you for the replies.  Truth be known there are some special assessments that are in the thought process.  Couple of big items that could be more than I originally ran the numbers for.  The property was owned by a family member who needed cash quickly so the property was quick claim deeded over to my name.  I haven't even collected a rent check as of yet.  So with that info I am deciding to cut possible loss on this transaction.  I do not currently have nor have I ever done a 1031 exchange.  Still somewhat new to the investment game.

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