If you have a business and it’s primary function is buying, renovating, and selling real estate, can you still use a 1031 tax exhange within any of the entities (C Corp., S Corp, LLC, LP or sole proprietorships)?
The real question is whether the property you are flipping is eligible to participate in a 1031 exchange. As a general rule, property flipping is an active income business and your property is simply the merchandise sold by your business.
As such, your property is not eligible to participate in a 1031 exchange, regardless of the form of entity holding title.
Just my opinion
What exactly is a 1031 Exchange? ??? ???
Section 1031 of the Internal Revenue Code permits taxpayers to roll the proceeds of the sale of investment or business use property into the acquisition of a qualified replacement property and defer all capital gains taxes on the transaction.
DaveT is right on the money. It sounds like you are in the business of buying and selling real estate and the 1031 exchange requires that you have the intent to hold the property as investment property in order to qualify for 1031 exchange treatment. The more properties that you buy and sell and the less time that you hold them the more difficult it is to prove that you had the intent to hold them for investment purposes.
But can a corporation or LLC do a 1031 exchange if its business is to purchase property to hold as an investment? In other words, is a 1031 exchange limited to individual taxpayers or does it also apply to businesses who buy property and rent it out?
LLC can if the LLC is a pass-through entity.
C-Corporation whose sole source of income is from passive investments is a Personal Holding Company. You don’t want this entity with the very high tax rate that goes with it.
You should always consult with your tax and legal advisor as to what type of entity is appropriate for your situation, however, if you are using a regular C corporation and it acquires real estate to hold as investment property, then yes, the corporation can sell and structure the transaction as a 1031 exchange transaction. Any entity that would have a taxable event due to the sale of the property can structure a 1031 exchange transaction as long as the entity is the taxpayer doing the 1031 exchange. It gets much more complicated if the underlying investors/shareholders/members/partners want to go separate ways.