1031 Exchange of Vacation Property


The 1031 exchange is one of the greatest ways to grow real estate wealth. The 1031 is a fairly straight forward transaction used for “like kind” exchanges of property with the goal of deferring capital gain taxes. I have personally used the 1031 exchange to sell one property and buy two a few years back. There are many great resources on the web, but I always go to http://www.1031cpas.com/ because they have great resources and they are the intermediary I recommend.


The rules about non-owner occupied rental property are fairly straight forward and well documented. Until recently the rules about the exchange of vacation property has been vague. Here are the latest guidelines from the IRS published in February regarding the exchange of rental properties.


In order to avoid the possibility of your exchange being challenged by the IRS you must in the two year period prior to the sale:
  • You must have rented the property; at a fair rental price, for at least 14 days during each 12 month period.

  • You must not use the property personally for more than the greater of 14 days or 10% of the days the unit was rented during each 12 month period.

So obviously it will take some planning, bookkeeping and a paper trail to make this work. If done correctly it could save thousands in taxes and allow you to invest more into that next property.


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