How To Use A 1031 Exchange When Flipping Houses

In this episode of Tax Tuesday, Anderson attorneys Eliot Thomas, Esq., and Amanda Wynalda, Esq., tackle ten listener questions covering a range of real estate and tax topics. They explain when short-term rentals belong on Schedule E versus Schedule C, and how material participation and substantial services factor into that decision. They explore strategies for mitigating capital gains on rental properties, including 1031 exchanges, Delaware Statutory Trusts, and UPREITs, and clarify why house flippers cannot use a 1031 exchange since flipped properties are treated as inventory. Eliot and Amanda also cover write-off strategies for fix-and-flip investors using a C corporation, grouping rental activity with an operating business to offset income, and deducting stock trading education expenses through startup costs. Additional topics include accountable plans for home office and mileage reimbursements, the difference between contributing funds to a for-profit business versus donating to a nonprofit, reporting the sale of foreign property on a U.S. tax return, and whether a prior-year cost segregation study can still be applied in 2026. Tune in for expert, practical guidance on all of these topics and more!

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Highlights/Topics:

• [06:08] "Can I file a Schedule E if I'm doing short term rentals?" Avoid substantial services and keep average guest stays over seven days.
• [15:49] "How can I mitigate capital gains taxes for rental property if I do not want to hands on operate rentals anymore?" Consider a 1031 exchange into a Delaware Statutory Trust or UPREIT.
• [22:38] "How can I get tax write offs on fix and flips?" Use a C corp for deductions through accountable plans and reimbursements.
• [26:24] "If I'm in the business of flipping houses, could I use a 1031 exchange to defer my taxes?" No — flipped properties are inventory and not eligible for 1031s.
• 30:29] "How does grouping work in order to claim losses in a self rental situation?" Group your rental property with your business to offset income with depreciation.
• [35:41] "I already purchased stock trading education programs before having any entity set up. How can I deduct those education expenses?" Set up your C corp now; deduct education courses as startup costs.
• [39:33] "How can I get reimbursed for a home office, business mileage and other expenses?" Use an accountable plan through your S corp or C corp.
• [44:15] "Can you write off or deduct a financial contribution made from your personal account to your for profit business account in the same way you can make a contribution or donation to your nonprofit?" No deduction; contributions adjust your basis and reduce future taxable distributions.
• [49:58] "If I sell property abroad, how do I handle the taxes on my US Tax return?" Report on Form 8949, Schedule D; claim a foreign tax credit.
• [53:15] "If I had a cost segregation study conducted in a previous year but did not use it, can I still use it in 2026?" Update calculations with your original cost seg firm before filing your return.

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