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Do they Qualify?

The general rule for 1031 Exchanges is that the relinquished and replacement properties must be held for trade, business or investment purposes.

So, what about vacation and second homes? Can they qualify as investment properties? The answer is yes, they can qualify as 1031 Exchange properties under certain circumstances. With the right planning and the assistance of Exchange Resource Group (“ERG”) and your tax preparer, you can maximize the potential of using your vacation or second home to achieve the tax-saving and wealth-building goals of a 1031 Exchange.

The Relinquished Property must:

• Have been owned by you for at least two taxable years immediately prior to the exchange;
• Have been used by you for not more than 14 days or 10% of the number of days the property was rented to other people (whichever is greater) in each of the preceding two years.

The Replacement Property must:

• Be owned as an investment property by you for at two taxable years after completion of the 1031 Exchange;
• Be used by you for no more than 14 days or 10% of the number of days the property was rented to other people (whichever is greater) in each of the two years immediately following completion of the 1031 Exchange. So, if you rent the property out for 200 days in a year, you can use the property, as a vacation home for yourself for 20 days, instead of 14, for that year.

Here at ERG, we are ready to assist you in every aspect of the 1031 Exchange as your QI and will be pleased to work with you and your tax professionals to achieve the best result for you!

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