1031 Exchange - Sail your Second Home in a Safe Harbor
Effective March 10th the IRS is now allowing Second Homes to qualify for a Section 1031 tax-free exchange; even if you take pleasure in personal use of the property. The IRS is clear in that buying a second home in the hopes that it will one day appreciate in value does not qualify the property as an investment. However, many use their second homes as an investment property as they rent them out a majority of the year.
To be sure a second home will pass the 1031 Exchange Tax-Free Test follow these rules:
1) Personal use can not exceed 14 days in a 12-month period.
2) Rent or attempt to rent the property at fair market value.
3) Do not claim interest deductions as home mortgage interest.
4) Claim tax deductions for maintenance expenses and depreciation.
5) Don't be a fool! Talk to a real estate tax specialist first!
If you would like to learn more about 1031 Tax Free Exchanges fell free to email me or sign up for one of Advantage Title's free classes (good for 3 continuing education classes for Realtors in Maryland) cbreck@advantitle.com.
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