Six Myths About 1031 Exchanges - Part 3

If you’ve been thinking about a 1031 exchange, but are confused by the seemingly continuous flow of misinformation out there, struggle no more. We’ve compiled some of the most common myths surrounding these great tax deferral transactions here and here. Today we offer some final thoughts.

Residential property can never be for personal use.

FALSE! As long as an investor follows certain guidelines, properties like second homes or vacation homes can qualify for a 1031 exchange and be personally used by the investor. An investor must offer the property for rent at fair market rate and can then use the property him or herself for up to 14 days per year or 10% of the time the property is rented – whichever is greater.

Vacant land does not qualify for a 1031 exchange.

FALSE! Any property that qualifies as real estate (as defined individually by each state) qualifies for a 1031 exchange. This means that things like water rights, mineral rights, leasehold interests greater than 30 years, and even air rights are eligible for an exchange. Of course, since each state defines “real estate” differently, it always pays to first confirm that an asset is eligible ahead of time.

To learn more about 1031 exchanges or our qualified intermediary and replacement property locator services, please visit our website.