1031 exchange guidlines are not designed for "flipping" property. They are for investment or rental property like kind exchange. If you got audited you may have your exchange dissallowed. My accountant recommends that I own the property on 2 tax returns (2004& 2005) before I exchange.
You might consider cash out refinancing of your Florida property for downpayment on a primary residence & another pre-construction. If you are willing to be that leveraged.
Okay.......spoke to my friend/buddy and he advise......
1)live in Primary residence for 2 yrs (2005-2007) and then sell.....
2)Rent 1st pre-construction for 1 yr (2006-2007)while living in primary residence, then live in it for 2yrs and then sell
3)2nd pre-construction sell and do 1031 exchange and take proceeds to purchase multi-family.....
Step 3, however, still sounds like a property flipping activity which disqualifies a 1031 exchange. You need to hold the property for a qualified investment purpose (such as placing the property in service as a rental) for a long enough period of time that the IRS is satisfied that you acquired the property for an investment purpose, before you can take advantage of a 1031 exchange.
Newkid...and Wexeter..thanks for the replies...... Question: on step three ...how long do I need to rent the property before I do a 1031 exchange....Is there anything else I could do to avoid paying capital gains.....
Thanks in advance........
JP[ Edited by trinijah1 on Date 06/17/2005 ]
The Treasury Regulations require that you have the intent to hold your relinquished and replacement properties for rental or investment. The best way to do that is to hold the property as rental or investment property for at least 12 months or more.
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The key is the intent to hold property for rental, investment, or use in a business. The challenge is how does an investor prove they had the intent to hold the property? The best way to prove this is to do just that - hold the property for rental, investment or use in a business, and the most conservative approach would be to hold the property as rental or investment for 12 months or more in order to make it eas to prove the intent to hold the property. Holding the property for less than 12 months does not mean that the exchange would be disqualified, but it does make it more difficult to prove that you had the intent to hold the property for rental or investment. If the investor routinely holds their property for rental or investment, then it is easier to argue the point, but if an investor routinely flips property then it makes it more difficult to prove the investors intent to hold.
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Bill Exeter[ Edited by wexeter on Date 06/18/2005 ]
Do you both own an undivided 50% interest in each of the three properties? Are all three properties rental or investment properties, or are any of the three properties a primary residence?
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Hi Ron,
I like this one:
http://groups.msn.com/TaxCorner/1.msnw
Tracy
www.accountantsworld.com has a huge tax discussion forum.
1031 exchange guidlines are not designed for "flipping" property. They are for investment or rental property like kind exchange. If you got audited you may have your exchange dissallowed. My accountant recommends that I own the property on 2 tax returns (2004& 2005) before I exchange.
You might consider cash out refinancing of your Florida property for downpayment on a primary residence & another pre-construction. If you are willing to be that leveraged.
Sanjosee.....thanks for your reply.........
It would actually depend on what your intent was. If you intended to rent the houses and hold them, you may be able to get away with a 1031.
You cannot divert the funds into either another pre-con which you plan to sell immediately or your promary residence.
SanJose is right on the money.
[addsig]
Thanks for the replies........
Okay.......spoke to my friend/buddy and he advise......
1)live in Primary residence for 2 yrs (2005-2007) and then sell.....
2)Rent 1st pre-construction for 1 yr (2006-2007)while living in primary residence, then live in it for 2yrs and then sell
3)2nd pre-construction sell and do 1031 exchange and take proceeds to purchase multi-family.....
Does this sound like a good plan of action
Thanks in advance for your response
Steps 1. and 2. sound just fine.
Step 3, however, still sounds like a property flipping activity which disqualifies a 1031 exchange. You need to hold the property for a qualified investment purpose (such as placing the property in service as a rental) for a long enough period of time that the IRS is satisfied that you acquired the property for an investment purpose, before you can take advantage of a 1031 exchange.
NewKiddInTown is right on the money.
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Newkid...and Wexeter..thanks for the replies...... Question: on step three ...how long do I need to rent the property before I do a 1031 exchange....Is there anything else I could do to avoid paying capital gains.....
Thanks in advance........
JP[ Edited by trinijah1 on Date 06/17/2005 ]
The Treasury Regulations require that you have the intent to hold your relinquished and replacement properties for rental or investment. The best way to do that is to hold the property as rental or investment property for at least 12 months or more.
[addsig]
The key is the intent to hold property for rental, investment, or use in a business. The challenge is how does an investor prove they had the intent to hold the property? The best way to prove this is to do just that - hold the property for rental, investment or use in a business, and the most conservative approach would be to hold the property as rental or investment for 12 months or more in order to make it eas to prove the intent to hold the property. Holding the property for less than 12 months does not mean that the exchange would be disqualified, but it does make it more difficult to prove that you had the intent to hold the property for rental or investment. If the investor routinely holds their property for rental or investment, then it is easier to argue the point, but if an investor routinely flips property then it makes it more difficult to prove the investors intent to hold.
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Bill Exeter[ Edited by wexeter on Date 06/18/2005 ]
Please Helpppp......
Do you both own an undivided 50% interest in each of the three properties? Are all three properties rental or investment properties, or are any of the three properties a primary residence?
[addsig]