News Archive: Ask The Professional - Will my vacation home qualify for a tax deferred exchange?

For Immediate Release:
May 09, 2008

Helena Sterling, Tax Supervisor
hsterling@rina.com
925-210-2180
1220 Oakland Blvd., Suite 300
Walnut Creek, CA 94596
www.rina.com

Q. Will my vacation home qualify for a tax deferred exchange?

A. The answer is “maybe”. The IRS has recently issued “safe harbor” guidance for exchanges occurring on or after March 10, 2008. Relinquished and replacement property must be owned at least 24 months prior and after the exchange, respectively. In addition, both the replacement and relinquished properties must, in each of these two 12 month periods; a) Be rented to another party at a fair market rental rate for 14 days or more, AND b) The taxpayer’s personal use of each dwelling must not exceed the greater of: 1) 14 days OR 2) 10 percent of the number of days the dwelling was rented If a taxpayer filed a return reporting a transaction as a Section 1031 exchange expecting the replacement property to meet the above criteria, but later determines that it did not qualify, an amended return should be filed.