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§1031 for vacation home

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    §1031 for vacation home

    A newsletter I just received from a §1031 intermediary (in the San Francisco Bay Area) claims that a partial, or in some cases a full §1031 deferral is available when vacation property is sold. The writer claims the following:

    (1) That if a vacation rental is used for less than the greater of 14 days or 10% of the days rented, that the personal use can be ignored, and the entire gain qualifies for a §1031 deferral.

    (2) That if a vacation home is never rented and its personal use is limited to "incidental" use, that the entire gain qualifies for a §1031 deferral. The term "incidental" use was not defined in the newsletter, and I have not seen this term used in the Code or Regs regarding this issue.

    (3) That if a vacation home is used for personal purposes 50% of the time and rented 50% of the time, that 50% of the gain qualifies for a §1031 deferral.

    I wonder what you folks think about the above opinions.

    The newsletter didn't discuss the following, but since it is a fairly common situation, I will add it here and solicit your opinions as to the availability of a §1031 deferral, and to what extent:

    (4) A vacation home is used for personal purposes for, say, 21 days and rented for 70 days ... a total of 13 weeks, one-fourth of the year. What portion of the gain on sale, if any, would qualify for a §1031 deferral?

    Related to some of the above usage possibilities is this question: Due to changing usage ratios from year-to-year, how many years prior to the sale of a vacation property should a taxpayer "look back" when figuring the personal use and rental (or investment) use. One year? Two? Five? The entire holding period?
    Roland Slugg
    "I do what I can."

    #2
    Interesting

    (1) Sounds reasonable

    (2) I suppose if one could say the main purpose was to hold property for an investment, this sounds reasonable.

    (3) Again sounds reasonable

    (4) What was done with the house when it wasn't rented or used personally?

    Possibilities- Depends

    Essentialy the main purpose for owning the property must be for investment/business in order to qualify.

    In Moore v Commisioner the taxpayers were denied a tax free exchange on a vaction home because it was not used primarily for investment/business.
    Last edited by veritas; 01-10-2008, 11:13 PM.

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      #3
      Originally posted by Roland Slugg View Post
      Related to some of the above usage possibilities is this question: Due to changing usage ratios from year-to-year, how many years prior to the sale of a vacation property should a taxpayer "look back" when figuring the personal use and rental (or investment) use. One year? Two? Five? The entire holding period?
      The entire period. Same as with Autos.

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