1031 and a contract sale with and ein must go by paper will IRS understand?

[michele]

Really complicated return. They had 1031  Dec 2020 then turned around in February of 2021 and sold the properties they received in a trade.( which was a slew of undeveloped lots and one with a house received) So they had long term deferred gains, but I would think a portions would be short term on the new property since they only had it a few months.  In the meantime another piece of property they sold this year  on contract to a business with an ein  so everything has to go by paper since  it is a business number for the sale and interest received instead of  a ssn I have tried to sort this all out but have my doubts as to the ones at the IRS being able to get this all entered by hand and the depreciation schedule for this is over 100 items.  Yes he is a real estate professional. so always something going on but  Was trying to make the 1031 items that were sold as clean and easy for them to understand but don't  know if that is possible with a long and short needed for the properties.  UGH hate to get a letter wanting explanations for it all.

thanks for any advice I will need it on this one.

Michele

[TaxGuyBill]

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@michele wrote:

They had 1031  Dec 2020 then turned around in February of 2021 and sold the properties they received in a trade.

 In the meantime another piece of property they sold this year  on contract to a business with an ein  so everything has to go by paper since  it is a business number for the sale and interest received instead of  a ssn

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Personally, I think that invalidates the 1031 Exchange, so you would amend 2020 to undo the 1031 Exchange.

Although the law does not give an exact time frame, it DOES say that a 1031 Exchange property must be held for business or investment.  Three months makes that doubtful.  Some background for the time frame: (1) An old PLR said that two years was fine to show that it was business or investment.  (2) Congress once had a bill stating that 12 months are required to prove it was for business or investment (but that was NOT passed).  

So again, my OPINION is that really short holding period invalidated the 1031.

I don't understand that other part.  Are you saying you need to file the tax return my paper/mail?  Why?

[BobKamman]

Are you sure you have a 1031 exchange from 2020?

. . .Likewise, it is commonly understood that a replacement property should be owned and used for investment purposes for at least two years in order to avoid an IRS challenge to the validity of the 1031 exchange.. . .

Flipping properties can be a profitable real estate investment tactic. However, flipped properties cannot qualify for an exchange because they are typically taxed based on regular income tax rates as a result of their short-term nature; therefore, there are no capital gains taxes to defer. Furthermore, flipped properties do not meet the use requirement of an exchangeable property because they are not held and used for rental purposes or in a business or trade.

https://bit.ly/3kxGU3V

All I know is what I find on the Internet.

[michele]

At the time the 1031 took place. I thought that it would be good since it was some rentals he had owned for several years and thought he would keep these he exchanged but he saw a good deal and turned them right over. Ugh. So it looks like it should be long term capital gains on the deferred and short term on the money he made on the newly aquired. Just getting it all to show in the program since the deferred is lumped into the property received.

the other the program or irs I don’t know which won’t allow for an electronic return when you are reporting installment interest under an EIN. It will only take a Ssn. I really don’t believe he qualifies for installment status. I think he would be classified as a dealer real estate professional and they I don’t believe qualify for installment sales.

what a headache.

michele