Leavenworth Vacation Homes and 1031 Exchanges

This article about using your vacation home or Leavenworth condo in 1031 tax exchange was provided by Ann Mclaren of LandAmerica 1031 Exchange Services. I have been fortunate to take a 1031 class from Ann in the past and I welcome anyone to contact her directly for more details on 1031 exchanges. She can be reached at (866) 962-1031. I hope to have more articles from her in the future.

 

 

A vacation home or second home held for personal use, solely for personal enjoyment, is not eligible for 1031 exchange treatment. However, a vacation home that is rented out at fair market value and is never used by the owner or his family is clearly eligible for 1031 exchange treatment. Most vacation properties fall somewhere between these two extremes, with some personal use and some rental use. Until recently, there has little binding guidance on the exchange of vacation properties in 1031 exchanges.

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Revenue Procedure 2008-16, which is effective on exchanges occurring on or after March 10, 2008, provides safe harbor rules for vacation homes and properties converted to or from personal residences. If the safe harbor guidelines are met, the IRS will not challenge whether the property qualifies as property held for productive use in a trade business or for investment under Section 1031.

 

A vacation home or second home that you are selling and/or purchasing in a 1031 exchange will qualify for safe harbor tax-deferred treatment if:

 

1) The relinquished property is owned by you for at least 24 months immediately before the exchange and the replacement property is held by you for at least 24 month immediately after the exchange.

 

2) The dwelling unit is rented out at fair market value to another person for 14 days or more for each of the two years immediately before the exchange for relinquished property or two years immediately after the exchange for replacement property.

 

3) Your personal use is limited to the greater of 14 days per year, or 10 percent of the number of days of the year that the property is rented at fair market value, for two years prior to or after the exchange. You may use the property some additional days for repairs and annual maintenance, but must be prepared to prove actual work done.

 

Personal use is defined as being used by you, any family member, or anyone who has an interest in your property, such as a tenant in common, or by any arrangement where fair market rent is not paid. You may rent your property to a family member if they use it as a principal residence (not as a vacation home) and pay fair market rent.

 

Under these safe harbor guidelines you may sell, exchange, or move into your replacement property after you have met the requirements for the first 24 months. 1031 exchanges of vacation properties or second homes that do not follow the safe harbor guidelines in Revenue Procedure 2008-16 may still qualify for 1031 exchange treatment outside of these parameters, but you should be prepared for increased scrutiny by the IRS.

 

Author:

 

Ann Mclaren, Vice President

 

LandAmerica 1031 Exchange Services

 

(866) 962-1031

Comments

Thanks Ann.<br/>These are good guidelines to understand so that we as REALTORS know when to suggest a client look deeper into the possibility of a 1039 Exchange.

I mean 1031 Exchange:)

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Allyson and Geordie Romer

Leavenworth real estate agents - Allyson and Geordie Romer

For over a decade, Allyson and Geordie have been serving clients in the Leavenworth-area real estate market. Together, they work tirelessly to stay on top of the regional market and present the most relevant opportunities to their clientele.

When not in the office, they can be found exploring the endless recreation opportunities of the area in all of its seasons.

 

Testimonials

 

Geordie provided excellent real estate representation! We appreciated his detailed knowledge of the market, his up front and honest approach, and his negotiation skills.
As reviewed on Zillow  – 

- Laura Anderson

 

 

As “west siders” looking for a getaway near Leavenworth, Geordie provided insight … his knowledge of design features important in a “snowy winter wonderland” was appreciated. Thanks Geordie!
As reviewed on Zillow  –
 

- Jean Stern

 

 

Geordie made this somewhat complicated transition easier for us…going above and beyond to help us work through issues that came up during the sale of our parents home. We appreciated his knowledge, attentiveness to details and his willing spirit.
Our family is grateful for Geordie!
As reviewed on Zillow  – 

- Terry Foster

 

 

Geordie was great in every way. We have been looking in the Leavenworth area for some time, and Geordie was absolutely the best for local knowledge, history and depth on neighborhoods, developments and the local market trends. He was very quick to respond (even when he was on his vacation) and worked very diligently to get all of our questions answered in a very timely fashion. We would recommend him highly to anyone looking to buy or sell a home. Very friendly, and helped us navigate all of the local options before we made an offer on the property that we purchased. Thank you, Geordie!

As reviewed on Zillow  – 

- Ryan Olsen

 

 

It was such a pleasure to work with Geordie and his wife, Allyson on our cabin purchase. They showed us a variety of locations, listened to what we wanted and helped us find the perfect match. Everything was smooth and not stressful, just relaxed and easy. We would definitely recommend Geordie and use him again if the need arises!

As reviewed on Zillow  – 

- Cammie Schlosser

 

Moving to Leavenworth?

Are you looking for a cabin or a condo in Leavenworth that your family can use as a home base when climbing, skiing or hiking around Leavenworth or Lake Wenatchee?

Maybe you rent a house here and have decided to stay, surprised how a summer of rafting somehow turned into seven years.

Maybe it’s time to escape the hustle of the big city (and its rain) and move to Leavenworth with its four seasons.

Maybe you bought a condo years ago, don’t seem to use as much, and it’s time to sell.

Whatever your motivation, we are here to help. If you are buying a home, the best place to start is with our Homebuyer’s Guide to Leavenworth.