Posted by Ed Garcia on March 02, 2001 at 21:49:26:
Ray,
I’m glad you decided to drop by today,
Ed Garcia
1031ex. for tax defaulted land in CA? - Posted by JKCDN
Posted by JKCDN on March 02, 2001 at 14:41:59:
I can’t seem to find a definitive answer to this question:
If I buy a tax defaulted properties at auction and sell it at a later date, can I put the proceeds in a 1031 exchange to escape capital gains tax?
I just finished reading John Beck’s quide to tax defaulted property in California and this question is not adressed.
Thanks everyone, this is my first post and I wanted to let everyone know what a great resource this board is !!
It depends… - Posted by ray@lcorn
Posted by ray@lcorn on March 02, 2001 at 18:02:09:
… on the later date, and what you did with the property in the meantime.
(And by the way… you don’t “escape” the tax in a 1031 exchange… it is deferred.)
For property to qualify for exchange under Sect. 1031 it must be held for investment. That means if you are flipping the property without a hold period during which you rented the property out, then it would not qualify. That would be treated as ‘dealer’ property, essentially inventory, and would be ordinary income.
There is no minimum length for the hold period specified in the IRC. Some CPA’s will advise that two years is a long enough holding period, others longer. One year would be, as JHyre says, very aggressive. But the key factor is your intent when you buy the property. If you are buying with the intent of reselling, then it does not qualify even if you do rent it first.
I have just written a new article on 1031 exchanges that I am sure JP will be posting soon. Make sure to register as a member of the Insider’s Club to get first notice of new articles each month.
ray