Question:
“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 lose a lot of $$ to the taxman. Can we do one of those 1031 exchanges so we don’t pay any taxes?”
Answer:
Two agents that worked 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 can’t be held for resale. The IRS says that makes you a real estate “dealer” and you’re not eligible for a 1031 exchange.
To be eligible, you’d 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, I’m sorry to tell you I don’t think you can do an exchange on your fix and flip house.
Please consult your tax professional.
