Pay Now or 1031 tax exchange?

Question

Hello Everyone.  I have been blessed over this last year in my rehab business now I need some tax advise from others on BP so that we don't bless the tax man so much :)  I have been rehabbing homes since last summer and though have only done seven flips, I will have made a net profit of almost $275,000.  I plan on building up my business to having 4 or 5 a month so hope that the profits will continue.  My questions for those that have been in this business for quite some time now is should I pay the capital gains on my profits as I go or should I look into the 1031 tax exchange?  I will be looking for a good accountant but want the advice from the professionals here on BP.  Thanks to everyone in advance.

Wayne Brooks · Answer

A flip is not considered an "investment" property.  It's a business, and considered inventory.

Jack Trader · Answer

ok never mind... I googled some more and found this article. Explains why flipping would not qualify for a 1031. Thanks.

Jack Trader · Answer

@Wayne Brooks , why does flipping not qualify for 1031 exchanges? When I read this article on Forbes it appears flipping is perfect for 1031 exchanges.

@Jerry Rodgers  Congratulations on the profits. That is very encouraging! I started about the same time as you...Fall of 2013...and I am into my 4th flip now...hopefully will end up netting a sum of around $120k across the 4 flips if all goes well...so I am very interested in this conversation as well...

Jack Trader · Answer

@Wayne Brooks , why does flipping not qualify for 1031 exchanges? When I read this article on Forbes it appears flipping is perfect for 1031 exchanges.

Jerry Rodgers · Answer

So I guess my new plan, William, will be to make as little as possible so the government won't spend as much :).....isn't that how if works?...lol

Jerry Rodgers · Answer

Thanks Wayne for the disappointing information :(  I guess the tax man always gets paid.  I will continue then to help pay off the national deficit :)

Wayne Brooks · Answer

Sorry but flipping, even if you held them for a year, doesn't qualify for cap gains or a 1031.  It's ordinary income with the associated FICA/self employment taxes.