Rules On 1031 For Buying Preconstruction Sales?

does anyone know if this is an allowable 1031 transaction? example: i just relinquished a property into 1031 and want to buy a preconstruction condo on beach. i spend all the cash for the downpmt on this deal, wait a year until its built, close on it and sell it few months later.anything wrong with this scenario? thanks.

Comments(2)

  • NewKidinTown216th April, 2005

    Two problems, here if you are trying to complete a 1031 exchange with the preconstruction condo.

    First is the timeline. A 1031 exchange must be completed within six months from the settlement date for the relinquished property.

    Second is the replacement property. The replacement property must be used for a qualified investment or business purpose. Flipping is a dealer activity and flip property is not eligible to participate in a 1031 exchange

    Nothing inherently wrong with your preconstruction condo flip strategy when done outside a 1031 exchange..

  • NewKidinTown216th April, 2005

    My experience with new construction property, is that the greatest appreciation occurs in the first three years after the builder has left the project. Between years four and five, appreciation rates slow down, and resales can be quite profitable in the fourth, fifth, or sixth year of a popular community.

    If this pattern holds true for your area, then you may be thinking about selling way too soon. Yes, you have a nice taxable payday now, but if you wait another 16 months, your tax free payday could be at least two and maybe three times larger.

    By the way, when you are talking about money, it is "capital" (with an "a"wink. When you are talking about the building where the US legislative branch of government meets or the hill on which the building sits, it is The Capitol (with an "o"wink, or Capitol Hill.

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