New 1031 Exchange Rules Help Property Owners with 2nd Homes!

New Limited Personal Use Verbiage now Allows Homes to Qualify 1031 Exchange

This Internal Revenue Service (IRS) has announce a change in their enforcement of  the Section 1031 tax-free exchange rules that now allows investors and second-home owners the ability to swap the property for new investment property a even though they have enjoyed personal use of said property.  Revenue Procedure 2008-16, will go into effect March 10, 2008 to allow limited personal use of an investment property by owners but still allow them to qualifying as "property held for trade or business or investment use for purposes of the tax-free-exchange rules." 

To be more specific, the personal use of either a second home or investment property cannot exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair market value.  Note, the IRS is clear that the property has to qualify as an investment propertyto be a candidate for a tax-free exchange.

This really helps my buddy Joe who has 2 second-homes he uses about 2 weeks year each.  Joe rents them out for most of the year (or when he can).  But as Joe is getting close to retirement, he is looking at exchanging his property to maximizing his investment potential.  With this change, Joe can now do a 1031 exchange and not have a huge tax obligation. 

Now I have to add my disclaimer.  Please review your situations with a real estate lawyer before you exchange your 2nd home. 

You can find AJ Nisen on Active Rain at Contra Costa California Mortgages or at Bank of America Mortgage .  Call AJ to talk about your Mortgage, Mortgage Rates, Free Credit Report or visit AJ's website to use his mortgage calculator. 

Alan 'AJ' Nisen
Mortgage Loan Officer
Email: aj.nisen@bankofamerica.com
http://mortgage.bankofamerica.com/ajnisen 
http://www.activerain.com/ajn