According to an interesting article in today’s WSJ article “A real estate speculator’s surprise,” many real estate investors don’t understand the proper use of 1031 exchanges [Note: Pd. Sub.]

A person who sells real estate can defer capital gains obligations by rolling their gains into a similar piece of property. Also called a like-kind exchange.

The problem is that many investors are flipping their properties so frequently, especially in certain markets like Miami and Las Vegas, that the IRS can interpret their activity as a business, and therefore subject to other taxes. This could catch many of these investors by surprise, especially if the boom cools and the margins on flips evaporates.

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