“We just bought a fixer-upper house to fix and flip. The repair work is about done. We want to sell it and buy another and not loose a lot of $$ to the taxman. Can we do one of those 1031 exchanges so we dont pay no taxes?”
***ANSWER:
Two excellent real estate agents that used to work for me bought a fixer-upper house a few years ago. They told me they were going to 1031 the money into another house and do the same thing.
Unfortunately, I had to break the bad news.
To be eligible for a 1031 tax-deferred exchange, The IRS says a property must be held for investment, business, or use in a trade.
That means it cant be held for resale. The IRS says that makes you a real estate dealer and youre not eligible for a 1031 exchange.
To be eligible, youd have to intend to rent the property out. And the best way to show that intent is to actually rent it out, for a good year or more.
So, Im sorry to tell you I dont think you can do an exchange on your fix and flip house.
Please consult your tax professional.
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