1031 for vacation rental?

1 Reply

I am currently in the process of selling a property and will be re-investing the proceeds. I will buy another local property but am considering using some of the funds to buy a vacation rental as well. I would use the property for family vacations but list with an online service for short term rentals to offset the cost. Is there a problem using a 1031 for this type of property? Any problem with using the property myself when it's not booked?

Great Question!

There are some guidelines to follow in order for "vacation property" to qualify in an exchange as replacement property:

According to Revenue Procedure 2008-16 - The purchase of a vacation property or a second home will qualify as replacement property in a tax-deferred exchange transaction if the following safe harbor requirements are met:

  • The subject property is owned and held by the investor for at least 24 months immediately following the 1031 Exchange ("qualifying use period"); and
  • The subject property was rented at fair market rental rates to other people for at least 14 days (or more) during each of the following two (2) years; and
  • The investor limits his or her personal use and enjoyment of the property to not more than 14 days during each of the following two (2) years, or ten percent (10%) of the number of days that the subject property was actually rented out to other people during each of the following two (2) years. 

Hope this helps!

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