Taxes On Flipping?
I am curious how many investors that flip use 1031 exchange? How many don't?
What do you feel the pros and cons of what you do are?
Is the extra freedom and immediate use for whatever purpose worth the 15% capital gains rate???
My understanding is that you would use a 1031 exchange if you are selling an investment property and are purchasing another investment property of equal or greater value. This is not useful for flipping, if you are using the 1031 exchange you would need a lawyer to open an escrow account and hold the money that you earned from the sale of the first property and use that for the purchase of the 2nd property.
1031 and flipping just don’t mix. The purpose of using a 1031 is to do several things. One is to defer capital gains tax on the equity. Second, when you do a 1031 you must retain the property for a minium of two years otherwise you will be liable for the capital gain on the prior ****Must Reach Senior Investor status before posting URL's***. There are many ways to do 1031, some forward some reverse. You can use an Accommodator for a reasonable fee. This entity holds the funds for the first leg of the exchange (the sale) until you have identified the second leg (the new purchase) of the exchange. This way you never hold the cash equity and so you can not be taxed on the gain. When you do a 1031 exchange you also roll or defer any loss (fix up costs ect) until you cash out. This way you can leverage the loss against the gain to lower your tax liability. We sold a Condo we owned several years ago, then used the equity to purchase two properties.