Foreclosure properties and 1031 exchanges

I have just recently started investing in foreclosed vacant properties in the Houston area (first purchase was this past week) and was wondering about the use of 1031 exchanges to minimize the tax consequences. How can these be used when they require you to identify the next investment property within 45 days and make purchase within 180 days? What if you do not purchase one of the three properties at the next auction? Can you redesignate another three properties or do you lose the benefit of the exchange? How do you arange for a third party to act as the 1031 agent?

It seems that the 1031 exchange is a great opportunity to defer taxes but I’m not sure how useful it would be in dealing with the structure of property foreclosure auctions where you are not sure what you may end up purchasing ahead of time

the 1031 exchange is a great vehicle to defer taxes. However, to use to buy forclosures it is very difficult. The conditions that have to be met for a 1031 is that you have to name the properties you are going to purchase within a 45 day window. The unpredictability of buying foreclosures will make this a very difficult method.

Forget about the number of days you have to identify the new property. One of the requirements of a 1031 exchange is that they be investment property. No, that doesn’t just mean that you intend to make a profit. It means that you intended or better actually did rent these properties out. You can play all sorts of games with intent and the IRS can come back and say your intent was not rental but flipping. That can mean short term capital gains-dealer status-etc.

What you need to do is learn how to puy money into a Roth IRA and and use it to buy these type of properties to eliminate the tax issue. Yes, there are problems in that you have to wait 5 years or longer to personally use those funs, but that is a small price to pay to eliminate the tax issue.