Do House Flips Qualify For 1031 Exchange?

You can do a 1031 exchange on property that you hold for investment or business purposes (such as a rental property). However, property that you hold primarily for re-sale (short-term house flips and rehabs) may not qualify for 1031 because you may be holding the property as your inventory to re-sell it.  Here's what you need to know about 1031 exchanges and flipping houses.

What is House Flipping?

Flipping is "the practice of buying an asset and quickly reselling it for profit” and the IRS may view your flip-property as being your “stock in trade or other property held primarily for sale” rather than held for investment purposes. Read the code section here.

§1031. (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 property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.

2. Exception - this subsection shall not apply to any exchange of stock in trade or other property held primarily for sale,

In a 1031 exchange, both your old Relinquished Property and your new Replacement Property must be held for the qualifying purposes of productive use in a trade or business or for investment. See IRS Publication 544.  

There are some ways to change your business plan so that these properties can qualify for 1031 exchanges, and I would be happy to talk with about how to do that.

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

Defer the tax. Maximize your gain.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

When to do a 1031 Exchange of Investment Property

Many taxpayers are curious about the 1031 exchange process but aren’t sure if a 1031 exchange is right for them. In this article, we are going to discuss when it’s a good idea to do a 1031 exchange of investment property.

You Want to Defer Your Capital Gains Taxes

The biggest benefit of section 1031 is that is allows you to defer your capital gains taxes on the sale of real estate the qualifies (i.e. real estate held for business or investment purposes).

You Want to Transition Out of Management Intensive Property

1031 exchanges are also an excellent vehicle for transitioning out of management intensive property. This is particularly common among older investors who no longer wish to own and operate management intensive properties like apartments as they get into their retirement years.

You Want to Move to a Different Geographic Area

1031 exchanges can be conducted using property throughout the United States. I you are moving to a different area of the country and want to keep your investment property nearby, you can use a 1031 exchange to do so!

Like-Kind Exchange Resources

CPEC1031, LLC is your one-stop-shop for all things relating to 1031 exchanges. With over twenty years of experience in the 1031 exchange industry, we have the ability to guide you through the unique ins and outs of your next like-kind exchange. Our qualified intermediaries are standing by to facilitate your exchange and help you defer 100% of your capital gains tax burden when selling investment or business real estate. Reach out to our professionals today for help with your exchange. Find us at our Minneapolis office today to set up an appointment.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Getting the Most Out of Your 1031 Exchange

When conducting a 1031 exchange, most taxpayers want to do everything possible to get the most out of the transaction. But there are several potential pitfalls that can lead to a less than ideal 1031 exchange. In this article, we offer up a few tips for getting the most out of your 1031 exchange of real estate.

Think About Your Debt, Value & Equity

In most 1031 exchanges of real estate, taxpayers are hoping to defer 100% of their capital gains tax burden. However, in order to defer 100% of your taxable gain, you need to meet certain thresholds. Specifically, you need to make sure your replacement property is equal to or greater than your relinquished property when it comes to value, equity, and debt. If you fail to meet these benchmarks you may still be able to do a partial 1031 exchange, but it won’t be 100% tax-deferred.

Consider a Build-to-Suit Exchange

You can also consider a build-to-suit exchange if you want to add any construction improvements to your replacement property before completing the transaction. But keep in mind that any improvements you make to the replacement property must be completed within the 180 day exchange timeframe.

Take the First Step Towards Capital Gains Tax Deferral

Take the first step towards capital gains tax deferral today by reaching out to a qualified intermediary at CPEC1031, LLC to discuss your 1031 exchange. Our intermediaries have decades of experience under their belts. We can assist you through all the steps in a 1031 exchange and help you avoid any potential entanglements. Contact us today at our Minneapolis office to learn more about us, the 1031 exchange process, and how you can save money in capital gains taxes by conducting a like-kind exchange of qualifying real estate.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Why Take the 1031 Exchange Leap?

Many taxpayers are curious about 1031 exchanges but might be hesitant to take the leap into tax deferral. In this article, we are going to talk about a few reasons why you might want to take the 1031 exchange leap to defer capital gains taxes.

The Benefits of Capital Gains Tax Deferral

A 1031 exchange has numerous benefits. Perhaps the greatest benefit offered by section 1031 is that it allows you to defer capital gains taxes on the sale of real estate (held for investment or business use) as long as you reinvest the sales proceeds into a like-kind replacement property. This allows you to save a potentially large sum of money in capital gains taxes while keeping your hard-earned money working for you in a continued investment.

Capital gains tax deferral is often reason enough to take the 1031 exchange lap, but there are other benefits as well. With a 1031 exchange, you can move into and out of different segments of the real estate industry. For example, if you own a retail space and want to move into an apartment building, a 1031 exchange allows you to do so in a tax advantageous manner.

1031 Qualified Intermediary Services

CPEC1031, LLC offers qualified intermediary services to US taxpayers who are looking to defer their capital gains taxes on the sale of investment property. Our team of intermediaries can help guide you through the unique details of your 1031 exchange and answer any questions you have along the way. A 1031 exchange is a powerful tax-saving tool, but you need to make sure you are meeting certain benchmarks in order to defer 100% of your capital gains taxes. Let us help ensure your like-kind exchange is a complete success. Contact CPEC1031 today to get started.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

The 15% Exception for Incidental Personal Property in a 1031 Exchange

In the realm of 1031 exchange transactions, oftentimes the real property being acquired may come bundled with minor personal items like furniture, fixtures, and equipment, which are referred to as incidental property.

2 Conditions for Incidental Personal Property

For personal property to be considered incidental to a larger real property item, two conditions must be met:

• it is typically transferred alongside the larger item in standard commercial transactions, and

• the total fair market value of all incidental property does not exceed 15% of the larger property's fair market value.

However, incidental property can present challenges in 1031 exchanges. One issue is how to properly identify replacement properties when they include such personal items. Another concern arises when acquiring identified replacement properties that also have incidental property included in the transaction.

The 15% Exception

The 15% exception for incidental personal property applies only to replacement property purchased, not to relinquished property sold in a like-kind exchange. To handle personal property proceeds, it's recommended that the seller retains those funds and assigns rights related to real property to the Qualified Intermediary. A sub-allocation of real property purchase price may also be necessary for tax depreciation considerations.

Get in Touch with a Qualified Intermediary

Jumpstart your 1031 exchange today by getting in touch with a qualified intermediary from CPEC1031, LLC. We have been in the 1031 exchange industry for more than twenty years and can guide your transaction through the 1031 exchange period from start to finish. Let us help you defer your capital gains tax burden when selling investment real estate. You can find us at our Minneapolis office and set up a time to chat with one of our team members. 

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved