just an idea - 1031 exchange

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]

  1. 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!! :)]

  2. 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. :stuck_out_tongue: 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.

so, THE LLC makes a profit from selling inventory (a house).

those profits are passed through to partners.

as members we get paid salaries - we pay self-employment taxes which cuts down our profits OR

we don’t get paid salaries thus no self employment taxes and we just pay income taxes on the profits OR

we open a seperate Home Improvement Company - which bills THE LLC for rehab services and this Home Improvement Co. then pays self-employment taxes. partner would need to be licensed?

Where does the 1031 exchange come into play? how do cap gains play a part?


  Lets have some fun with this.. 

3 partners you can gift everyone of them 11k a year and they can gift you the same.

Now there is no difference in giving them a t-shirt or 11k. Now lets say they are married or have a girlfriend or gift there Mom and Dad another 22k.

Just wanted to get the brain juices going.

www.irs.gov search Gifts.

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.

Here’s a decent article that might help.

k, that article is like most on the subject - it “kinda” clears it up.

so a 1031 works if you hold it for over a year? and something else.

so, that’s why most do not use 1031’s unless they’re developers and such.

k, so i have another idea.

lets say, that i, personally, buy a home - owner occupied. i fix it as a home owner and sell it to THE LLC because i don’t want to live in it anymore.

buy it (foreclosure) for 40,000 - put 10,000 into it.
sell it to LLC for 65,000

LLC sells it for 95,000

i don’t need licenses. i don’t need permits. i don’t need inspections. LLC can buy it with no subject to inspection or anything else - then LLC sells it to someone else.

as a homeowner - I pay whatever taxes.

as LLC - when it sells - members gift 11k to each other and to spouses and friends, thus leaving less than say 10,000 of taxable profit.

i love this silliness.