If you own a vacation home or second home that you don’t use frequently anymore and considering replacing it with something new or perhaps planning to invest in some investment funds. You could sell it without paying high capital gain taxes by doing a 1031 exchange.
If you don’t own a vacation or second home but planning to have one day. Have you ever considered investing in exchangeable real estate that can help you to earn the funds to purchase vacation or second home through 1031 exchange?
From March 10, 2008, rules on exchanging vacation and second home changed and become more transparent, making it possible to complete a tax-deferred 1031 exchange of vacation home for replacement vacation or second home when certain guidelines are followed.
Under 1031 exchange we can swap the vacation home for the like-kind real estate exchange. This can be used as one of the best ways to increase the value of investment property to 1031 into something better, like vacation rental home. Now before selling the income property one should check that he/she qualifies for 1031 exchange or not.
There are many options under 1031 exchange to go with:
- We can use the proceeds of the investment property sale into a vacation rental home. It enables us to increase the value of investment property, suppose the target property is rented for more than 14 days per year, and you use it for fewer than 14 days per year- and not more than 10% of the nights rented – then you can invest the proceeds of like-kind exchange into a vacation rental home.
- We can also sell the vacation home through 1031 exchange if the home is not rented for more than 14 days per year and the personal use of the home was not more than 14 days per year (or you can say that less than 10% of the total nights rented).
- One can buy a retirement home with the proceeds received from the 1031 exchange. Suppose if you own a fourplex and want to sell then you have to pay the tax for the capital gain on any appreciation, as well as the depreciation recapture. Alternately, you could use 1031 exchange to purchase a perfect retirement home.
Exchanging the income property for a vacation rental home as part of a 1031 exchange is the best way to level-up your investment if you are flexible with where you’d like to invest your proceeds.