With constant, busy lives, the dream for many Americans is to find that special place to get away from it all. It is not surprising that the number of vacation homes has grown 29% nationwide since 2009.

Did you know that you can sell your investment real estate and reinvest the gain, tax deferred, to purchase your vacation home sanctuary? Maybe it’s time to sell your apartment building or investment condominium and purchase property that you can truly enjoy.

The challenge is making sure the vacation home will qualify as a 1031 investment property. Fortunately, the IRS provided guidance in Revenue Procedure 2008-16. If, via a 1031 Exchange, you use the proceeds from the sale of your investment property to purchase a future vacation home, for the first two years you must rent the property at fair market value for at least 14 days each year. Besides standard rentals you can lease it as an Airbnb or rent to friends to minimize rental damage. Another challenge during the first two years of ownership is that your personal use must be limited to no more than 14 days each year or 10 percent of the actual days that you rent it out. For example, if you lease it for 200 days each year, your personal use can be up to 20 days. If you are able to abide by these rules, after two years the dream vacation home is yours to use as often as you like without any more requirements. 

 

Tax and Legal Advisors

Consult with your tax and legal advisors to determine whether this 1031 Exchange strategy will work for you. Then reach out to us to facilitate. Happy vacationing.

 

IPX1031. The best choice for your 1031. 

IPX1031 is the largest and one of the oldest Qualified Intermediaries in the United States. As a wholly owned subsidiary of Fidelity National Financial (NYSE:FNF), a Fortune 300 company, IPX1031 provides industry leading security for your exchange funds as well as considerable expertise and experience in facilitating all types of 1031 Exchanges. Taxpayers’ funds are held in segregated accounts at large stable banking institutions in the United States. Our nationwide staff, which includes industry experts, veteran attorneys and accountants, are available to help you and your legal and tax advisors. For additional information regarding IPX1031 and questions on 1031 Exchanges, please review:

Revenue Procedure 2008-16 
Do Vacation and Second Homes Qualify for 1031 Exchanges? 
Strategically Buying Your Dream Vacation Home with a 1031 Exchange 
How to Buy Your Dream Home with a 1031 Exchange
Capital Gains Estimator
What is a 1031 Exchange?
IPX1031 Knowledge Center