1031 Exchange. buying multiple house with proceeds from flip?

9 Replies

in order to waive capital gain tax, i have to using the proceeds from selling my flip house within 180 days to buy another property.

my question is, can I buy 2 or 3, whose total sum exceeds the proceed of the flipped house , in order to get away from capital gain tax?

My understanding is yes you can and it doesn't have to be the same type of property (ex: sold SFR and buy Multi-Family or Commercial).

Originally posted by @Martingale Shark :

in order to waive capital gain tax, i have to using the proceeds from selling my flip house within 180 days to buy another property.

my question is, can I buy 2 or 3, whose total sum exceeds the proceed of the flipped house , in order to get away from capital gain tax?

Hi Martingale,

First, I should point out that properties acquired for rehabbing/fixing and then sale/flipping do not qualify for 1031 Exchange treatment.  The critical issue is that you must have the intent to hold for rental, investment or business use in order to qualify for 1031 Exchange treatment.  Properties acquired for rehab and sale are actually held as inventory (for sale) and will not qualify for 1031 Exchange treatment.

Second, you can buy one, two or more properties as part of your 1031 Exchange transaction as long as the total amount purchased is equal to or greater than the net sale price of what you sold.  The 1031 Exchange gives you a great way to diversify your investment real estate portfolio.

The profit on a flip property is ordinary self-employment income, not capital gains.

Originally posted by @Bill Exeter :
Originally posted by @Martingale Shark:

in order to waive capital gain tax, i have to using the proceeds from selling my flip house within 180 days to buy another property.

my question is, can I buy 2 or 3, whose total sum exceeds the proceed of the flipped house , in order to get away from capital gain tax?

Hi Martingale,

First, I should point out that properties acquired for rehabbing/fixing and then sale/flipping do not qualify for 1031 Exchange treatment.  The critical issue is that you must have the intent to hold for rental, investment or business use in order to qualify for 1031 Exchange treatment.  Properties acquired for rehab and sale are actually held as inventory (for sale) and will not qualify for 1031 Exchange treatment.

Second, you can buy one, two or more properties as part of your 1031 Exchange transaction as long as the total amount purchased is equal to or greater than the net sale price of what you sold.  The 1031 Exchange gives you a great way to diversify your investment real estate portfolio.

 hi Bill

thanks for reply. but if i close another house in 180 days after sold my previous flip, then I am qualified for 1031 exchange right? ( if my 2nd house is for long term rental )

Originally posted by @Dave Toelkes :

The profit on a flip property is ordinary self-employment income, not capital gains.

 hi Dave

but if sold within a year, there is a higher short term gain tax on it right?

Originally posted by @Martingale Shark :

 hi Bill

thanks for reply. but if i close another house in 180 days after sold my previous flip, then I am qualified for 1031 exchange right? ( if my 2nd house is for long term rental )

Hi Martingale,

No, if either property was bought with the intent to rehab and flip then the 1031 Exchange would technically not qualify.  If you exchange into a property and hold it for rental purposes long-term it would help your argument, but the relinquished property was still held for rehab/flip/sale and would still not qualify for 1031 Exchange treatment.

Martingale people try lot's of things with the 1031 exchange. Just know if it is not clear cut but questionable you could get challenged on it down the road by the IRS.

Be open and prepared for that possibility.

Originally posted by @Bill Exeter :
Originally posted by @Martingale Shark:

 hi Bill

thanks for reply. but if i close another house in 180 days after sold my previous flip, then I am qualified for 1031 exchange right? ( if my 2nd house is for long term rental )

Hi Martingale,

No, if either property was bought with the intent to rehab and flip then the 1031 Exchange would technically not qualify.  If you exchange into a property and hold it for rental purposes long-term it would help your argument, but the relinquished property was still held for rehab/flip/sale and would still not qualify for 1031 Exchange treatment.

 thanks Bill.

trying 1031 exchange could be challenging. what kind of short term gain tax rate is on flipped house,( held less than a year ). does all the profit taxed together with my total income on 1040?

Originally posted by @Martingale Shark :
Originally posted by @Dave Toelkes:

The profit on a flip property is ordinary self-employment income, not capital gains.

 hi Dave

but if sold within a year, there is a higher short term gain tax on it right?

No.  Flip property, sometimes called dealer realty, is property held primarily for resale to customers. The profit on flip property is always ordinary self-employment income regardless of your holding period.  Capital gains tax treatment, long or short term, does not apply.  

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here