1031 Exchanges and rehabbing

  • Thread starter Joseph Aaron Tank
  • Start date

J

Joseph Aaron Tank

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.
 
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D

D. Stussy

Joseph said:
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?
If you're using an exchange, you aren't selling then buying.
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.
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.
Would it make a difference if rehabbing is a hobby or sideline?
Sideline: No.

Hobby: Then you don't have a business and therefore 1031 is
unavailable to you.
 
D

Dick Adams

Joseph said:
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?
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
 
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L

L K Williams

Joseph said:
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?
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?
 

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