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.