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FINAL SCORE: IRS Makes up it's
mind on Vacation Home 1031 Exchanges...
The IRS just
released a ruling setting forth
the guidelines for doing a 1031
exchange on a vacation
home. The ruling is
a Revenue Procedure (2008-16),
which is what I call a ‘cookbook
ruling,’ which essentially
means that if you do certain
things, you get a guaranteed
result. In this case they will
NOT challenge the investment
nature or exchangeability of
your property.
To avoid any
possibility of a challenge to
your vacation home exchange,
you have to meet certain requirements
for your vacation property. During
the 24 month period preceding
the sale of your vacation home,
or the 24 months after the purchase
of your vacation home, or both
if they both are vacation home
properties:
- You must have rented the
property, at a fair rental
price,
for at least 14 days during
each 12-month block of the
24-month period, and
- You did not use the property
personally for more than the
greater of 14 days, or 10 percent
of the days rented, during
each 12-month block of the
24-month period.
Since this ruling
is a Revenue Procedure, failure
to meet the exact requirements
of the ruling are not fatal,
but could subject you to closer
scrutiny of your exchange. In
other words, using the property
for 15 days does not mean that
your exchange is ‘toast’–it
merely means that they could audit
you if they wish.
The purpose of
the ruling is to provide a ‘bright
line’ test that gives you
concrete assurance that your
exchange will not be challenged.
This goes into effect for the
sale of any vacation homes starting
March 10, 2008.
If you are
now doing a vacation home exchange
with us, or are going to do one,
we can help. Call
us, or let us call you for
further details.
--The
Experts |
TEE-Shots
are Tips
from the Exchange
Experts
that are designed to make you
think about, and ask questions
about, the 1031 exchange process. |
