1031 Vacation Properties
Now that many communities are lifting restrictions in their areas, many of our exchange clients are asking questions about purchasing replacement properties through their 1031 Exchange that they want to be able to use personally as well.
The first thing an investor must understand is that simply holding a property with the expectation of gain does not establish their intent to hold for investment purposes. The property must be held and used for investment purposes meaning that they should be renting that property out. It could be as a long-term rental or you may consider using it as a short-term rental. Either can qualify for 1031 treatment. But remember a few things:
- Will this rental qualify for 1031 Exchange treatment if I use it personally as well? It can, as long as you meet the requirements as described in Private Letter Ruling 2008-16. The requirements can be read here.
- Is this the best use of my 1031 Exchange funds? Remember that you want your investment to grow and that is why you are doing the 1031 Exchange in the first place. Find property(ies) that show the potential for a good return (income and appreciation). Talk with your financial advisors and your real estate professional for the best way to see growth in your real estate portfolio.
The 2022 travel season is coming up. Acquiring the right investment property now can provide you with positive income flow and a place where you can occasionally visit personally.
For more information, please reach out to your tax professional for specific questions or contact the specialists here at Security 1st Exchange for assistance.