Article Archive

The IRS has granted special relief for taxpayers whose exchange was impacted by Hurricane Ian. If you are doing a 1031 exchange anywhere in the State of Florida on property that you sold, bought or are buying, or you live in the State of Florida, the IRS has automatically extended your 1031 deadlines. After the closing of the sale of your old property, IRS law requires that within 45 days you give the agent handling your exchange a list of properties you might buy to complete your exchange, and then requires that you complete the purchase of at least one of those properties within 180 days. The Disaster Relief extends these deadlines.

In a real estate market moving as fast as it is right now, "flipping" property seems to be the favorite pastime. Flipping is when you buy a property with the intent of turning around and selling it soon after the purchase. But can you do a 1031 exchange and defer the gain in a flip situation?

To qualify for a 1031 exchange, which rolls the gain from the sale of the Old Property to the New, both properties have to be held as an investment or used in a trade or business. Held for investment means you intend to hold the property for future appreciation over time. Used in a trade or business means the property produces income, like rental property. Since you don't rent the property in a flip, it isn't income-producing. So the question is, can a fix-and-flip be 'held-for-investment?'

Section 1031 is an IRS code that allows you to defer real estate capital gains taxes (in some cases, a lot of capital gains taxes). The rules aren't impossible to follow, but they aren't easy, either.

One of the rules that causes a lot of angst, especially in a fast-moving real estate market like we have now, is the requirement that you have forty-five days to make a list of replacement properties you might want to buy. Anything you purchase to complete your exchange must be on that property identification list. You create your identification list on a form provided by your Qualified Intermediary (the 1031 specialist the law requires to guide you through the process).

Finally, the dust appears to have settled, the drama has ended, and the Biden regime has begun. So where are we now, and what do I think the 1031 Exchange industry can expect in the foreseeable future?

I've been writing a prediction article every year or so since about 1998—especially when we've had a Presidential regime change. I've struggled with writing this article more than any other because, frankly, I don't have a clear vision of what's going to happen next. So I'm going to start with big, broad categories, then break them down into smaller details. In the end, I'll try to tie them all together into a prediction of where the 1031 industry is going.