I saw this comment made by "Carla" in another thread. I've read several books on flipping property and all of them mention a 1031 exchange as a viable method for dealing with profit. Is the info I've read incorrect or am I missing something? Thanks!

whats your definition of flipping?

Buying a property, renovating it and selling it for a profit (hopefully).

to qualify for a 1031 you need to hold the property for a specified period of time. If your goal is to buy, rehab and resell then you will most likely not have held the property long enough. The longer you hold the property the more it costs you.

1031's are designed for long-term holding. If you do it right a flip will not be long-term!

[QUOTE]Originally posted by Paul Oaks:
[QB] to qualify for a 1031 you need to hold the property for a specified period of time. If your goal is to buy, rehab and resell then you will most likely not have held the property long enough. The longer you hold the property the more it costs you.

1031's are designed for long-term holding. If you do it right a flip will not be long-term!

What's the best way to deal with profits from a quick flip (under a year)? For the purpose of a 1031 exchange, what is the definition of long-term? Thanks again!

oh ok.

actually my definition of flipping is wholesaling or assigning interest in a property to another investor. this investor then rehabs for profit.

buying a property and rehabbing it for profit is 'retailing' not 'flipping' in my opinion

use a self directed Roth IRA to defer taxes with 'retailing/rehabbing'

That is only good advice if you do not want to use the profits as income. I only do 1 or 2 a year in the IRA.

Paul, how do you handle the profits not directed into the IRA? In other words, what's the most effective method for dealing with profits from a flip/rehab? And one more, what's the "technical" definition for a "flip"? Thanks for all the info!

whenever i talk to seasoned/experienced investors about rehabbing/retailing, they dont want me to use the word 'flipping' in our conversation.

whenever i talk to unseasoned/newbie investors, they use the words 'flipping' and 'rehabbing' interchangeably within the same context.

PAY YOURSELF FIRST!

put some profits into reserves

recycle the money into the next rehab project.

The reason "flipping" is not a term to use is it's associated with straw buyers,collusions and other various types of mortgage fraud.

Our broker always tells us to say we are turning over a property,or fixing up a property for resale.

She says you could innocently be say flipping and be around an attorney or someone who is with the re commission that thinks you are doing fraudulent activity,of course you aren't but it safer to use less risky words.


On rehabs what alot of investors due is fix it up then after 3 months refinance to cash out most of the new equity,since a refinance is a loan it is not considered taxable income by the irs which means for example you take 20k out on a refinance it's yours to spend as you like without taxes.Then when you sell you don't have hardly any gain on the property to be taxed or you can just 1031 the profit into another deal to avoid the gains tax.

A good website is John Adams at www.money99.com

He has been in the business for about 30 years as a broker and investor.

Yes he does have systems and stuff like that,but he has alot of free info on the site and also a free radio show he does weekly answering investor questions.He also goes over on his site the 18 reasons he believes single family detached homes are the best investment you can make,he has acquired hundreds of properties in his time and still is active today buying investment deals.I don't buy his systems but do enjoy his radio show and articles.


good luck

From my understanding through a good friend of mine which is also a quailified intermediary and accountant; in order not to be seen in the IRS eyes as a "flipper" and subject to a tax up to 50% of your profits, a suggested rule of thumb is to 1031 exchange around every 20 to 24 months. Again this is to avoid a tax of up to 50% of your profits.

Thanks for the info and patience with this topic but I'm still not clear on something. When I start rehabbing, it's something I'd like to continue doing. With that said, what's the best method in dealing with profit from a rehab? How do I go about paying as little in taxes as possible? If it's a 1031 exchange, how long must I hold the property in order to qualify?

I've just found an excellent site for 1031 info.

www.expert1031.com