Common Questions About 1031 Exchanges & "Flipped" Property

Internal Revenue Service

Real estate investors have a lot of questions when it comes to 1031 exchanges and flipped property. In this article, we’re going to discuss some of the IRS regulations surrounding this topic.

According to the IRS

According to the instructions for IRS form 8824, Section 1031 doesn't apply to exchanges of real property held “primarily for sale,” so flip properties probably don’t fit the definition of “held for productive use in a trade or business or for investment.” 

See also IRS PUB 544 which states: “the nonrecognition rules for like-kind exchanges apply only to exchanges of real property not held primarily for sale.

 26 U.S. Code § 1031.Exchange of real property held for productive use or investment

(a) Nonrecognition of gain or loss from exchanges solely in kind

(1) In general

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for realproperty of like kind which is to be held either for productive use in a trade or business or for investment.

But

1031 (a)(2) says that:

(2) Exception for real property held for sale

This subsection shall not apply to any exchange of real property held primarily for sale.

Commercial Partners Exchange in Minneapolis, MN

Exchanging property under section 1031 can be a complicated process, but we are here to help! The qualified intermediaries at Commercial Partners Exchange Company have over two decades of experience helping clients through 1031 exchanges. If you want to save money in capital gains taxes when selling investment property, a like-kind exchange may be right for you. Give us a call today to learn more about our 1031 exchange services and how we can help you through the 1031 exchange process.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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