Like Kind Exchange (IRS 1031) for LLC rehabber - Posted by Scott (ATL)

Posted by John J. on May 05, 2000 at 01:06:06:

I just completed another 1031. I always go over the transaction specifics wth my CPA before finalizing the deal and sometimes run various scenarios through the tax form. His advise to me has always been to hold the property at least until the next tax year, so the acquisition and sale do not show up below each other on the tax return form.

Like Kind Exchange (IRS 1031) for LLC rehabber - Posted by Scott (ATL)

Posted by Scott (ATL) on May 04, 2000 at 17:33:48:

Are other rehabbers using Like Kind Exchanges for your properties?

Since we have sold our first home (Held for 3 months) and didn’t do a “Like Kind Exchange” we may have to pay higher taxes than if we had put the money into the next home. Anyway, that is water under the bridge right now but are other rehabbers finding this to be useful for doing sfh rehabs?

I was under the assumption that at the end of the year we could take our cash after expenses and put it into a new home thus showing essentially a zero net profit. I have just been advised this might not be the case. If we buy,fix,sell 2-4 more houses this year each gain will be taxed separately. I was assuming that if all these homes were purchased under the company that only our net profits at the end of the year would be taxed.

Anyway, I have to have more discussions with my accountant but I am interested in hearing how others here are handling flipping multiple homes under a company umbrella.

Old Atlanta Renovators

Re: Like Kind Exchange (IRS 1031) for LLC rehabber - Posted by Bud Branstetter

Posted by Bud Branstetter on May 05, 2000 at 12:18:37:

The definition says that if your intent was to resell then it can not be exchanged. Hard to prove intent. The stratagy is to use a C corp to rehab and flip. Do this for your living expenses and pay your tax. For the rest you do a combination of LLC and IRA. Set up the LLC(limited liability not corp form) or even an S corp or personally if you must. Lease out those properties after rehab for a year or two before selling. George Yeider has a list of things to do to make sure the L/O looks like an investment property. Investment property can now be 1031’d, installment sale, and more favorable capital gains treatment. The only problem is a hard money loan is not the best for longer term holdings. Learn how to use that IRA to pospone or eliminate taxes on the profits. The idea is to build an estate not to do as many as you can in a year and pay tax on all of it.

Re: Like Kind Exchange (IRS 1031) for LLC rehabber - Posted by Laure

Posted by Laure on May 04, 2000 at 21:06:54:

I have been advised that I cannot use the 1031 exclusion for flip and rehab properties. The 1031 is intended for “investment real estate”, which means property that is held. I can’t remember the term it must be held, but 18 months comes to mind. Someone here will correct me, please. Also, if you are a dealer, or are later determined that you were operating as a dealer via audit, the 1031 will be thrown out and you will pay penalties and interest. I think I’d forget about it if you are active in buying and selling.

From someone who has been raked over the coals by the IRS.

Laure :slight_smile:

Re: Like Kind Exchange (IRS 1031) for LLC rehabber - Posted by JHyre in Ohio

Posted by JHyre in Ohio on May 05, 2000 at 07:05:01:

She’s right. If the property in question is held for sale- as opposed to held for investment- 1031 cannot apply. Some people play audit lottery- that is 1031 property held for sale figuring it won’t get picked up…that’s a business decision on your part. If properly managed (see John J. post for some ideas), you can minimize the chance that the IRS will pick it up. Do alot of exchanges- and eventually they’ll catch on to the pattern. Case law abounds with examples of belated discovery and action. If you must do audit lottery, I would do it with first few properties only…the more flip/exchanges you do, the weaker the argument for “held as investment”.

John Hyre