After a recent Tax Court ruling that disallowed one taxpayer's 1031 exchange of his vacation (or "second") home, I've seen articles on this topic that range from "this was a bad ruling, so ignore it," to "the sky is falling and you can no longer 1031 vacation homes under any circumstance."
So can you exchange a vacation home? For those of you who are not familiar with this controversy, let me summarize the issue: Section 1031 allows the deferral of the gain from one investment property into another. Properties held strictly for personal enjoyment do not qualify. The question is, "Are vacation homes held for investment, or for personal enjoyment?” The Tax Court ruling clarified that vacation homes held strictly for personal enjoyment do not qualify. The trick then is to differentiate your property from purely personal enjoyment, and cast it, or document it, as investment property.
It Doesn’t End at 15%
Six things you need to know about §1031 - Part 1 For Investment Use Only
Recent Tax Court Case Affirms 1031 Exchange Intent