New 1031 Exchange guidelines for vacation homeowners

“The IRS has provided guidance regarding whether vacation homes qualify for a 1031 exchange, and not a moment too soon — vacation homes are becoming the trend in Texas among baby boomers. According to a new IRS ruling, the property must first be held by the taxpayer for 24 months to qualify for a 1031 exchange.

In addition, during each 12-month block of this holding period, the owner must have rented the vacation home for at least 14 days at a fair market rent. Also during each 12-month block, the owner is only allowed to use the property for the greater of 14 days or 10 percent of the days rented.

Owners are also allowed a reasonable number of “maintenance days” to care for the unit.”

So what if your exchange doesn’t meet this rule? Well, you are not going to get automatically audited but it’s probably not a bad idea to start tightening up your records, and charging your relatives a reasonable market rate for using your waterfront property. Remember, the success of your exchange could come down to your good record-keeping habits.

Credit goes to Realty Times.

Tags: 1031 Exchange, houston, irs ruling, texas, vacation home