1031 TAX EXCHANGE

IRS VACATION HOME RULING

The Iternal Revenue Service issued a Revenue Procedure ruling how vacation properties can qualify for 1031 tax exchange. (Exchanging of investment properties).

The property must be held by the taxpayer for 24 months. The holding period is broken into 12-month blocks and during each the property must be rented at the fair market rate no less than 14 days.

The owner can use the property for 14 days or 10 percent of days rented, whichever is greater, plus a "reasonable" number of days for maintenance.

It is a safe harbor ruling, failing to comply with all the rules does not mean the exchange will be denied or an audit will automatically occur.

Keep good records of the property's rental history and the dates the property was occupied for maintenance.

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