So you want to buy a vacation property. The key is to make sure the property you want to purchase will qualify.

A 1031 exchange could help defer taxes and expand your investment portfolio; however, there are some stipulations you need to be aware of when buying vacation properties in a 1031 exchange. A common question is whether or not a vacation property qualifies for a 1031 exchange. Vacation homes can qualify for a 1031 exchange if the property is intended for investment use.

How to ensure the property is properly used for investment.

To ensure that your new vacation home is eligible for a 1031 exchange, the property must be used for rental income during the first two years immediately following the purchase of the property. The property owner can use the vacation home personally, but for no more than 14 days or 10% of the days the home was rented out, whichever is greater, within both 12 month periods. The owner is allowed to use the property while conducting maintenance; however, maintenance must be verifiable with receipts. An additional stipulation is that the vacation home must be rented at fair market value for at least 14 days in each of the 12 month periods.

As long as the stipulations above are met, the vacation property can be eligible for a 1031 exchange. After the two year investment period, many property owners use vacation properties freely, or continue to rent their properties out on a less frequent basis.

The information presented is for information purposes and is not intended as investment, legal, tax or compliance advice. Land 1031 does not offer or sell investments or provide investment, legal, or tax advice.

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