if you run a real estate holding company that flips or rehabs/sells -
and you implement a business model for 10 properties - projects
regardless of specific numbers [for the sake of time and writing in this post]
lets say that you’re goal was $40,000 profit per project
you do this 10 times, each time filing a 1031 exchange. [i do not know the specifics of 1031’s, so i’m assuming this is doable].
after 10 projects - that’s $400,000
company then invests this money into a commercial triple-net-lease and/or an apartment complex (>50 units) with a goal of $150,000 in profits per annum. [again, i’m just throwing around numbers]
when do you end up paying for the cap gains on the $400,000 - say you do this all through an S-Corp or LLC or hell, a C-Corp [which is best when using 1031? - my guess is LLC that’s taxed as an S-Corp…why? i have no idea - i’m guessing!! :)]
can 4 partners, each with 25% ownership of company and a beginning balance of $80,000 accomplish this?
I’m just having fun here - throwing sh*t around. it’s late…
The numbers you were throwing around are doable maybe even a little low. The 1031 for rehabs/ flips is not. There is no capital gain on a rehab or flip only profit made from selling inventory, therefore you pay regular income tax. You could still make that 400k from 10 projects a year but be prepared to write a big check at the end.
Where does the 1031 exchange come into play? how do cap gains play a part?
You don't have capital gains when you flip. That's why 1031's play no part. They just simply aren't an option. I would go into more detail about them but it may mean more coming from a CPA. There was also some reversals about the members income tax and SE tax which would be best if a CPA cleared up for you.
This is the first time I’ve ever heard the word “fun” associated with taxes. Sorry to rain on the parade.