Exchangers frequently want to use §1031 for properties that they have either used personally or will eventually use personally. Second homes, as personal use properties, do not qualify for §1031 treatment. Vacation rental homes raise the questions…How much rental do I have to have? How much can I use the property myself?
Rev Proc 2008-16 creates a safe harbor for “dwelling units” such as houses and condominium units.
Safe Harbor Requirements
Relinquished Property
1. The Exchanger owned the property for 24 months prior to dateof sale.
2. The Property must be rented for 14 days, or more, in each of the two 12-month periods immediately preceding sale.
3. The Exchanger’s vacation use (not work days) in each of those years did not exceed the greater of 14 days or 10% of the days the property was rented. Personal use includes friends using the property for free or below market rent; donating use of the property to a charitable cause; and use by family whether or not they paid market rent.
Replacement Property
1. The Exchanger must own the property for 24 months after the date of purchase.
2. The Property must be rented for 14 days, or more in each of the two 12-month periods immediately following purchase.
3. The Exchanger’s vacation use (not work days) in each of those years may not exceed the greater of 14 days or 10% of the days the property was rented. Personal use is as defined above.
This post is courtesy of our partner beutlerexchangegroup