Are Vacation Homes Eligible For 1031 Exchanges? Many taxpayers use the 1031 clause to swap one vacation home for another once they retire. Can you use a 1031 exchange for a home while on vacation, and if so, how long can you delay paying taxes under Section 1031 until you retire?
This exclusion allows you to sell your primary residence and shield up to $500,000 in capital gains if you have lived there for the past five years. If you later move into a new property and make it your primary residence and eventually plan to use the $500,000 capital for a profit, you can’t make the profit until you’ve lived there two out of every five years, according to the rules.
Congress tightened the loophole in 2004, but taxpayers can still convert vacation homes into rental apartments and pay $1,000 per square foot. For example, if you stop using your beach house and rent it out for six months out of the year, you can swap it for another property. If you get a tenant and behave objectively, you can convert the house into an investment property.
Only those who offer rent and never have a tenant may, and only if the tenant should never have been let in or never had been let in.
This fact will be as crucial as the time and the more time that has passed since you converted the use of the property into a rental, the better. One year would be better, but even if it were an absolute standard, it would not be enough.
If you want to use the property you have exchanged, you must move out within 12 months of the expiry date. Your personal use of the equipment may not exceed the cost of renting it for 12 months at a reasonable rental rate.
For additional and more detailed information about 1031 exchanges, call
Granite Exchange today at 800-899-6959.
Our Certified Exchange Specialists® (CES®) can explain the process and guide you through every step of the exchange to ensure that the exchange is done properly.
We are proud to have long-standing relationships with the intermediary community and have a designated team supporting relationships with escrow officers, lawyers, accountants, tax advisors, investment consultants and corporate finance professionals.