An Exceptional Exchange Experience, Made Easy. |
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With Patience, Vacation Home Owners Score Big with 1031 Exchanges |
Section 1031 provides a tax strategy to defer gain when exchanging properties held for investment or use in a trade or business. A personal use property, such as a primary residence or second home, does not qualify, even though everyone would likely agree that all real estate is acquired for future appreciation. Under Section 121, homeowners can qualify for a $250,000 ($500,000, if married filing jointly) exclusion from gain when selling property used as their primary residence for at least 24 of the last 60 months. Unfortunately, vacation homeowners have no easy way out unless they have time and patience to implement a plan.
The exchange of vacation homes was long frowned upon. In 2007, after an unfavorable ruling involving the exchange of a vacation home, the Treasury Department voiced concern that taxpayers were abusing 1031 exchange rules and encouraged IRS to provide guidance. The guidance came in the form of Revenue Procedure 2008-16. Surprisingly, effective March 2008, it offered a “safe harbor” for the 1031 exchange of vacation homes. Generally, a safe harbor means if you follow the rules, the IRS will not attack the transaction. Qualifying for the safe harbor takes time – four years, to be exact.
Click through for a summary of the safe harbor that applies to properties used and converted to vacation homes.
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IRS issued "safe harbor" guidance that would enable vacation home owners to convert their property to a 1031-qualifying investment property. |
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The 1031 CORP. Exchanging Thoughts Blog
Looking for another perspective on 1031 exchanges and the real estate industry?
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Upcoming Webinars
>> Thursday, February 1, 2024
12:00 Noon Eastern
>> Thursday, March 7, 2024
12:00 Noon Eastern
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1031 CORP. provides an easy-to-follow overview of 1031 exchanges and their many benefits. We'll also review the requirements of a successful exchange and the essential role of 1031 CORP. to keep the exchange transaction simple for all parties. |
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We Love Sharing the Power of 1031 Exchanges! |
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Want to know more about 1031 exchanges, the process, and the best ways to leverage this powerful wealth-building tool?
1031 CORP. regularly offers presentations, continuing education (CE) classes, seminars, exhibits, and select sponsorships for real estate professionals, attorneys, accountants, title and escrow professionals, and financial advisors. We would love to present in your office or at your event, either virtually or in-person. Our presenters include, Margo McDonnell, Marissa LoCascio, and Bruce Glendinning, among several other Exchange Team members. We had a blast meeting professionals in 2023, and we look forward to sharing the power of 1031 with you in 2024.
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1031 CORP. Team members got together in January to celebrate the new year. We love to tell professionals and investors about the power of 1031 exchanges. We hope to meet you in 2024!
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Chad Isett
Exchange Officer
1031 CORP.
Collegeville, Pennsylvania
(610) 792-4880 ext. 203
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Chad Isett
Role: Exchange Officer
Location: Collegeville, Pennsylvania
Where have you seen 1031 do the most good?
1031 exchanges help maximize the proceeds of a sale so an investor can reinvest into better properties. Exchangers can diversify easily, into different areas in town or different regions across the country. It’s especially important during downturns. Real estate investors can maintain their portfolio without being tied to economic fortunes in a certain area.
The neighborhood benefits, as well. Investors often purchase properties in need of renovation, with intent to increase the real estate’s value. As a result, the property values of neighboring properties and the surrounding area often improve, as well.
What are important points to remember? What often gets overlooked?
Investors know about and are concerned with capital gains but can be surprised when depreciation recapture sneaks up. Depreciation recapture tax can match or exceed capital gains tax.
I talked with a client this week—her property had declined in value, but she still owed depreciation recapture. She had owned the property for 26 years, depreciating the property to zero. Depreciation recapture doubled her expected tax bill. Depreciation is recaptured at 25% back to the government. Capital gains, however, can be taxed at 15-20%.
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Poll: Where is the best market for buyers? |
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Please select only one answer. Poll results will be reported next month.
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Outlying States or Territories
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Poll: What is your outlook for the market in 2024? |
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Your poll answers from the December issue of Exchanging Times
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Serving as a nationwide Qualified Intermediary for 1031 tax-deferred exchanges since 1991, 1031 CORP. strives to provide an exceptional exchange experience made easy for our clients and their advisors. We provide our clients with enhanced security of funds, knowledgeable exchange professionals and a commitment to keep the exchange process simple for our clients and their advisors. Our Exchange Team, which includes Certified Exchange Specialists®, has the experience and expertise to facilitate even the most complex exchange transactions, including reverse and improvement exchanges.
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