What's the difference between investment property that qualifies for 1031 exchange and inventory?
Investment property is property that you're holding for appreciation. You're hoping that it goes up in value and that it's a good investment. Inventory, on the other hand, is property that you acquire with the intention of reselling.
What’s the Purpose of the Property?
Your primary purpose in acquiring inventory is to flip it. This is an important and somewhat fuzzy distinction for some people to understand because the investment property qualifies for 1031 tax deferral and the inventory the property that you hold primarily for resale is excluded from 1031 treatment.
Knowing what your mental intention is and conforming your behavior in the holding of real estate to make it fit into the 1031 category can be very important. If you have real estate and you want to be able to qualify for the 1031, you don't want to immediately list your acquisitions for resale because that would be an indicator that you're holding it as your stock-in-trade (that you're primarily engaged in flipping the property). You want to evidence your intention to hold the property for a qualifying purpose which is to hold it for investment for business purposes.
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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