Can vacant land be 1031 exchanged for vacation home?

Question

I understand that "like kind" is extremely generous, so trading vacant land for real estate shouldn't be a problem. But is a "vacation home" that gets rented out on VRBO or the like when not being used by owner considered an investment property that would be eligible for 1031.

Dave Foster · Answer

@Kevin Dubina, It all depends on your intent. There is no restriction at all with 1031 that prevents you from purchasing an investment property that you use some for personal use. The question you'll have to answer if ever questioned is "Is this property an investment property that I use for myself also? Or is this a property I have purchased or my personal use but try to rent to make it eligible for 1031.

There is actually an intent safe harbor in rev proc 2008-16 where the IRS agrees that your intent is investment as long as you use the property no more than 2 weeks or 10% of the number of days it is actually rented not counting days you stay there performing work. What is never declared is how much more use than 2 weeks you can have and still qualify.

Air BNB in particular would lend itself to this model as it's available for rent all the time. But if the calendar blackout shows 48 weeks a year "full" because the owner is there, that starts to look more like a personal residence and less like an investment.

Good income reported and with taxes paid is a very compelling reason for the IRS to let it be.

Can vacant land be 1031 exchanged for vacation home?

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