Is This 1031 Going To Violate Any Rules?
Hi all. I found a property I would like to purchase. It is pre-construction to be completed in about four months. I am selling a property that will close escrow mid-July. So here is the question:
Can I put earnest money on the pre-construction property now, close on the sale of the currently owned property in July, and 1031 the money into the pre-construction property which will close around September? (Without having to pay the large fees associated with a reverse 1031) Thanks in advance for the thoughtful responses. Brian
This can be done but you will need to wait so that the property can be purchased within the 180 days after the current property is sold.
Joe & Newkid....thanks for the input! Brian
Yes, as long as you can complete the construction within the exchange period. Any portion not completed is not eligible for an exchange.
Can anybody out there help with some advice? Thanks.
I am at a loss to answer.
You note information that you have already gleaned from this forum, and then ask if it is accurate? Do you expect to get a different answer from the same people?
If you really want corroboration, you really need to ask your own CPA to comment.
The passive loss limitations and the definition of a capital asset are two completely separate sets of rules. The fact that you qualify as a real estate professional for passive loss purposes, by itself, has no bearing on whether an asset qualifies as a capital asset or not.
Whether you are a real estate professional or not, property considered inventory is not a capital asset. Generally inventory is defined as "stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business"
There may be factors in the determination of a capital asset that a real estate professional is more likely to meet than a non-real estate professional such as frequency of sales or substantiality of sales but the the determination itself does not hinge on the real estate professional status.