Honolulu 2nd Home Seller?
April 23rd, 2008 categories: For Sellers
I received an email update from Cindy Naito, of First American Exchange Company, regarding the tax treatment of a second or vacation home. Goods news. Until now it was generally understood that a seller could not use an IRC Section 1031 Exchange to defer the capital gains tax on the sale. Based on this update, it appears you may be able to qualify for 1031 treatment! Given the number of second and vacation home owners in Honolulu, this is a terrific idea. NOTE, IF YOU HAVE A VACATION HOME AND ARE THINKING ABOUT USING A 1031 TAX DEFERRED EXCHANGE AS A PART OF A SALE, GET ADVICE FROM YOUR OWN TAX EXPERT TO DETERMINE IF YOU QUALIFY.
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Revenue Procedure 2008-16 – Safe Harbor for Exchanges of Vacation Homes and Conversions to or from Personal Residences
This revenue procedure, which will be effective for exchanges occurring on or after March 10, 2008, establishes a safe harbor regarding when a vacation home can be considered investment property and traded in a §1031 exchange. The ruling states that a vacation home qualifies for a §1031 exchange if the investor owns the home for at least 24 months, rents it for at least 14 days for each 12-month period, and uses it no more than the greater of 14 days per year or 10 percent of the number of days during the year that the home is rented. These requirements apply to both the relinquished and replacement properties.
For purposes of this revenue procedure, a vacation home, also called a “dwelling unit” in the Revenue Procedure, is real property improved with a house, apartment, condominium, or similar improvement that provides basic living accommodations including sleeping space, bathroom and cooking facilities.
Source-Cindy Naito, First American Exchange Company
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Mike Harmon