Discussion:1031 exchange on second home
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Discussion Forum Index --> Tax Questions --> 1031 exchange on second home
| 14 February 2006 | |
| Any guideance on doing a 1031 exchange on a second home held for investment purposes? | |
| 14 February 2006 | |
| Make sure you set up everything in advance, and carefully observe the time limits. You cannot do after-the-fact 1031 exchanges. | |
| 14 February 2006 | |
| A second home does not qualify for Section 1031. The IRS will view it as personal use property unless it is rented out. You could convert it to rental property for a period of time and then do a Section 1031 for other rental property later. | |
| 3 May 2006 | |
| Do you have any citations that state a 2nd home does not qualify? I would argue that a 2nd home is considered "investment" property; that it was purchased with the hope it would increase in value, which most real estate does. Section 1031 and its Regulations only state that to qualify, property must be held for "use in a trade or business or for investment." I haven't been able to find a definition of "investment property" anywhere. I found a court case that decided a "former vacation home offered for sale was income-producing property, despite failure to offer for rent." (Edward G. Lowry, Jr. v. USA, Docket No. 73-285, 11/1/74)
Any thoughts or citations? | |
| 5 May 2006 | |
| Hi agree with above vacation home must constitute "qualified use" property for purposes of IRC 1031 at the time of exchange defined under 1031(a)(1). It must be rented for profit to a third party tenant at arms length or use in a t or b. Property held for investment is unproductive property held by taxpr primarily for the incremental increase in value over time. I deal with exchange people and have serveral of their articles re vacation homes and most will tell you no personal use for 2 years before and after the exchange (exchanged property) to qualify. I lost a client over this because you can always find some "barber" that says you can do it. bye | |
| 14 May 2007 | |
| To further this discussion regarding second homes and vacation properties used for personal enjoyment and not for rental purposes, I present the following:
The definition of “Like-Kind used in Section 1031(a) - 1(b) states “. . . The fact that any real estate involved is improved or unimproved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class. Unproductive real estate held by one other than a dealer for future use or future realization of the increment in value is held for investment and not primarily for sale [bold added for emphasis] . . .” Section 1031(a)(1) provides: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like-kind which is to be held for productive use in a trade or business or for investment.” [bold added for emphasis] To me the “qualified purpose” requirement means the property must be used in a trade or business or held for investment. If as stated: ”unproductive real estate held by one other than a dealer for future use or future realization of the increment in value is held for investment.” Then, a second home or vacation homes being used for personal enjoyment and not for productive use (rental income) can be considered investment property if the property, when purchase, was purchased for future realization of the increment in value. Just my 2 cents | |
| 14 May 2007 | |
| no, not if there is any personal use
If there is any personal use, it is not held for investment purposes. There's 24 cents worth. Wes wrote the same thing. | |
Death&Taxes (talk|edits) said: | 14 May 2007 |
| While not the same, IRS takes Kevin's position, and most of us agree, when the decedent's personal residence is sold by the estate. If used after death, it will not qualify for loss on sale, but if not used, it is considered held for investment. IRS has tried to expand that position, or at least the Holtsville Center has, to rule out deductible loss in all cases like this. | |
| 15 May 2007 | |
| The below information is excerpts from the Tax Court Case of Rivera v. Commissioner. See T. C. Summary Opinion 2004-81
This Case does not address 1031 Exchanges but it does address the defining of “investment property” with regards to income and the use of the property for personal enjoyment. Section 1.183 2(b)(4). The term “income” as it is used in Section 212 “is not confined to recurring income” but may also apply to gains from the disposition of property. Section 1.212-1(b) The term “income” means not merely income fo the taxable year but includes income the taxpayer “may realize in subsequent taxable years.”
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