Profits from my first flip

[Greg Sonnier]

I followed the steps from the articles written on this site for my first flip. This helped me find, evaluate, rehab and sell my first investment property. Backstory is- I purchased a near foreclosure SFH for $105K, put $40k in improvements in 26 days. I had an offer for $180k on day 27. My question is about my next move on the profits from the sale. I was hoping to avoid capital gains tax but it looks like 1031 may not be an option for me since I am not holding it for 1 year? I plan on rolling the profits into my next rehab, rental or land. I'm doing this part time under my llc and don't intent on making flipping a full time biz but who knows, things can change.

[Bill Exeter]

Hi @Greg Sonnier,

Unfortunately, properties acquired with the intent to rehab and then sell/flip do not qualify for tax-deferred exchange treatment under Section 1031. These properties are acquired with the intent to rehab and then immediately sell and are therefore held as inventory in your real estate business and not held for rental, investment or business use. However, if you were to acquire the property, rehab the property and then hold as rental property it would qualify for 1031 Exchange treatment.

The length of time that you hold the property has no bearing on whether it qualifies for 1031 Exchange treatment. The real issue or requirement is that you have the intent to hold the property for rental, investment or business use. Properties acquired and held for years – but held with the intent to build and sell or rehab and sell – would still not qualify for 1031 Exchange treatment because the intent is to buy build/rehab and sell. The intent must be to buy and hold for rental, investment or business use in order to qualify for tax-deferred exchange treatment.