1031 Rookie Questions
We purchased a pre-construction home for $1K down, w/ the rest of the $135K mortgage due at closing. We intended to rent the house for a year, then sell. Since the initial contract, the price of housing in the area exploded, but the rental market dropped. We can sell the house w/in 7 days of our closing, and net $28K profit, which we'd like to roll into a larger house purchase/renovation project. I know we haven't held on to the house for a year, but economic considerations have caused us to revise our plans. Will the IRS approve our use of the 1031 to shift funds among investment properties?
In my opinion, that a 1031 would not be worthwhile in this case because the amount you are looking to roll over is so small. I think you would be pushing it to try to do one anyway.
You will be taxed at your ordinary income rate + 15.3% self employment tax if you did not use an s-corp to tax advantage yourselves. You might be able to make the argument otherwise---you should definatly consult a tax advisor.
Here is a link to an article on Holding Requirements for 1031 Exchange Properties.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=572&mode=thread&order=1&thold=-1
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