1031 Exchange In A Months Time?
Hi,
Ok, I am totally confused on this. I have been recently informed that there is no time period in which you must hold a property before 1031ing it (as long as you are not a Develper or Real Estate Agent). Does this mean I can flip properties and 1031 them in 1 month or 3 months???
Thanks!
Rob
Quote:
On 2007-05-08 01:10, RobertMD wrote:
So you are saying that there is no law but the IRS will treat me as a dealer if I do this???
The tax code says that dealer realty can not participate in a 1031 exchange. There is abundent case law that tells us what pattern of activity makes you a dealer to real estate.
It really does come down to your primary intent. Quick flips suggest your primary intent was to act as a dealer so you are not permitted to defer your capital gain with a 1031 exchange if the IRS deems that you acted as a dealer. This determination is made for each transaction.
On a quick flip you will be paying self employment taxes (SS and medicare) plus whatever bracket your income taxes fall in. This can eat 50% of your profit or more if you are in a high tax bracket. If you rent for a year and a day you will pay a maximum 15% long term capital gains tax on your profit.
How bad it is depends on your tax bracket and how much more you could make with that money if you had it now. Generally you are better off borrowing the money to invest now and selling after holding over a year.