I have a client who buys houses, fixes them up and sells them for a profit. She keeps them a year. Can they reinvest without paying taxes. I have read about the like kind exchange involving a third party to handle the transaction. I just want some great info so that I sound confident. Is that too much to ask? Ha!
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Pookie -
Sounds like
your client may be self employed in the housing market. Buying, fixing up and selling.
If not, then these would go on Sched. D as long or short term capital gains & losses.
However, there is no way that the gains can be deferred or non taxable.
What your client is doing is nowhere close to being a tax free exchange.Last edited by Bird Legs; 05-04-2006, 04:08 PM. -
Sec 1031
Good site for basic info on like kind info is 1031cpas.comComment
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I wouldn't put these transactions on Sch. D
This person is in the business of flipping houses, and should report on C. No like kind exchange.Comment
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Yes it is a business for them. I did ALOT of research on this subject. I advised my customer to form a partnership with this person they are going in with. To keep everything separate from personal. I believe that if the property was kept for maybe 5 years then you could do it on a Schedule D and that it was held for investment. No rule but I think that is a reasonable period of time.
My brother does something similar to flipping. He keeps the houses for 6 years, rents them, and then sales. He said his accountant told him to keep them atleast 8 years. But I think you could go a little lower. Like I said 5 years.
Here is a good article on it:
Another option is for them to live in the house 2 years and then sale it.Comment
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Flipping
Went through two audits in the last few years that were related to flipping. One was successful for the tax payer and one was not. To my knowledge the Service has not come out with any specific guidelines in this area. Still based on facts and circumstances and ability to persuade the examiner.Comment
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