1031 Exchanges and rehabbing

Discussion in 'Tax' started by Joseph Aaron Tank, Feb 1, 2004.

  1. If your business is home rehabbing, can you use 1031
    exchanges when you sell a rehabbed property and buy a new
    project in order to defer paying capital gains tax on your
    profit?

    I've heard differing things on this. Some say that since
    your business is rehab, the property in question would be
    inventory, and so would be ineligible for a 1031 exchange.

    Would it make a difference if rehabbing is a hobby or sideline?

    Thanks in advance.
     
    Joseph Aaron Tank, Feb 1, 2004
    #1
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  2. Joseph Aaron Tank

    D. Stussy Guest

    If you're using an exchange, you aren't selling then buying.
    Not necessarily true. Doing this ONE property at a time
    isn't likely to cause it to be inventory. Having several
    [properties] in process simultaneously is.
    Sideline: No.

    Hobby: Then you don't have a business and therefore 1031 is
    unavailable to you.
     
    D. Stussy, Feb 3, 2004
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  3. Joseph Aaron Tank

    Dick Adams Guest

    Rehab property is subject to a 1031 exchange only when once
    rented. At that point it can be exchanged for property to
    be rehabbed for the purpose of holding as an investment.

    And that is the damn most liberal interpretation of 1031
    you are going to get and find defensible at at audit.

    Dick
     
    Dick Adams, Feb 4, 2004
    #3
  4. Joseph Aaron Tank

    L K Williams Guest

    I don't know if I'm missing something or just need to think
    it through more but I don't see how this would work.

    If the regabbing is your only source of support, how do you
    get the cash to pay your expenses? In a 1031 exchange, any
    cash taken out of the deal is taxed to the extent of any
    gain.

    What am I missing?
     
    L K Williams, Feb 4, 2004
    #4
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