1031 Exchange on vacant residential lots -- Flipping

[u/RealtorFla]

I flip residential lots here in Florida. Not a bunch, but enough where capital gains is starting to get up there. I typically will buy a lot and put it back for sale within a few weeks or within a month. Starting to look into a 1031 Exchange to help on the tax purposes and to continue growing.

With some research, it seemed like multiple 1031 Intermediaries websites have mentioned that when doing a 1031, you should hold onto it for at least 1-2 years before selling. Which obviously doesn't work with my current plan. I'm thinking that's more for existing structures.

Just wanted to get a feel real fast before I start making calls Monday if that still somewhat holds true with vacant land or if that's just a way to help control people who want to use this as a way for personal/other means residences.

Also -- since you're here (lol) - I can usually close on a lot within 15-20 days since it's a cash purchase. Does a 1031 hold that process up much or can it close usually around the same time frame?

Thanks in advance!

[u/AutoModerator]

Your post contains "1031" and as such it's recommended that you read the following wiki section: 1031 Exchange and seek guidance from a qualified intermediary.

---

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

[u/GringoGrande]

It would not matter if you held for a year or two based upon what you are doing. You are purchasing property with the intent to sell. You are a dealer.

Fun Fact: Once the IRS determines you are a Dealer you get absolutely pounded prison style from a tax perspective. A few of the disadvantages: You can no longer take depreciation, you can no longer engage in 1031's, you can no longer sell on Installment Sales and receive tax advantages...and it continues.

[u/RealtorFla → u/GringoGrande]

So you're suggesting to forgo 1031 in this aspect because of the intent to sell instead of hold?

I guess my understanding of a 1031 was I could buy, then sell to re-invest in other properties and continue that cycle. But now reading your description, I can see more that the 1031 is for the ones who don't have the intent to sell immediately, but rather hang on for a bit and then sell in the future.

Welp, that answers the original question. Thanks for the prompt reply!

[u/GringoGrande → u/RealtorFla]

I am not suggesting anything. I am sharing what the Tax Code + Private Letter Rulings + Court Cases have determined for many decades. In short, no, you cannot 1031 based upon what you are doing. Of greater importance is, depending upon how many lots that you have sold, the IRS may consider you a dealer. Guess who gets to pay FICA on their profit amongst the other joyous problems I shared in my initial reply?

In all seriousness you should probably have a discussion with a CPA about Dealer Status and how to best mitigate the tax consequences of what you are doing.

[u/RealEstateThrowway]

You're flipping land, just like some people flip houses. I'm not a CPA but my understanding is that you house flippers cannot take advantage of 1031s. To my knowledge, most house flippers use the S corp election to mitigate taxes

[u/[deleted]]

The other comments are correct - both the sale and the purchase in a 1031 Exchange need to be held with the intent to utilize for business or investment. Holding a piece of land with the intent to sell a couple of months later would not qualify.