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Like-Kind Exchanges

Forum|Forum|1 year ago
July 24, 2024
4 replies
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I have a client who started building houses for a profit. He sold his first house last year in June and just put for sale his second house this month of July 2024. He is telling me that his real estate agent told him that he can use section 1031 so that no gains are recognized on the sale of his first house.

Is this true? Can anyone help me because I read the instructions on form 8824 and I don't see how he can qualify to use section 1031.

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Best answer by abctax55

I don't see how he can qualify to use section 1031.

You are correct - spec houses don't qualify & never have.

"Building for a profit" = a death knell for both §1031 *AND* capital gains treatment.

Just-Lisa-Now-

Intuit Community Champion

He needed to use a 1031 intermediary for the sale...did he do that?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

Alfredo1967Author

Level 4

Good morning Lisa and thank you for your response. I don't think he used an intermediary for the sale. Well he did use a realtor.

sjrcpa

Level 15

A builder's houses are inventory and are not eligible for 1031.

The more I know the more I don’t know.

Alfredo1967Author

Level 4

Thank you for your response SJR.

abctax55Answer

Level 15

I don't see how he can qualify to use section 1031.

You are correct - spec houses don't qualify & never have.

"Building for a profit" = a death knell for both §1031 *AND* capital gains treatment.

HumanKind... Be Both

abctax55

Level 15

(and I've said more than once.... Juno could pass the realtor test.... )

HumanKind... Be Both

PATAX

Level 12

@abctax55 you should apologize for that statement. Yes apologize to Juno, he is much too smart to compare to Realtors.😉🐕☝

qbteachmt

Level 15

"He is telling me that his real estate agent told him that he can use section 1031 so that no gains are recognized on the sale of his first house."

Did he operate it for rental, after building and before selling?

For future reference, a 1031 exchange intermediary is basically an escrow agent for handling the exchange properly, so that your client does not violate the rules. They don't replace the real estate agent, and a real estate agent is not, by definition, a Qualified Intermediary for a sale, since they represent the seller. There's a time restriction, too.

https://atlas1031.com/basics/what-is-a-qualified-intermediary/

Your client is in the construction business. The invested costs are inventory asset, until sold; not expense.

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