Mid Atlantic Real Estate Journal — August 16 - 29, 2013 — A


M id A tlantic R eal E state J ournal By Scott Saunders and Pamela Michaels 1031 Exchanges and vacation homes

Investors Real Estate Agency

Investors Real Estate Agency 322 Ambrust Rd. • 2nd Floor Youngwood, PA 15697 P: 724-925-0215 F: 724-925-0216 mallison5@aol.com Mark D. Allison, Broker of Record/Owner


ccording to the National Association of Realtors, the vacation home mar-

property if: (1) the relinquished property is owned by the property owner

use period”); and (2) within each of the two 12-month periods which make up the qualifying use period (whether for the relinquished property or the replacement property): (a) the property owner rents the property to another person or persons at a fair rental for 14 or more days; and (b) the property owner’s personal use of the dwelling unit does not exceed the greater of: 14 days, or 10% of the num- ber of days the dwelling is rented out. Under Rev. Proc. 2008-16, continued on page 24A

ket is heat- ing up again a n d ma n y real estate professionals are reporting strong sales in many va- cation home h o t s p o t s .

for at least 24 mon t h s immediately prior to the exchange, or the replace- ment prop- erty is owned for at least 24 months im-

Scott Saunders Pamela Michaels

Real estate in resort or vaca- tion destinations can produce diverse and significant tax consequences. These tax con- sequences can be particularly critical at the time a property is sold, since many vacation destinations have appreciated significantly and property own- ers may be facing significant capital gain tax consequences upon disposition. The use of a tax deferred exchange under IRC Section 1031 can be par- ticularly important in disposing of such property. Tax Treatment At Disposition: Qualifying For A 1031 Exchange Internal Revenue Code Sec- tion 1031 may be available for vacation property owners seek- ing to defer capital gain taxes on the sale of a vacation-type property. The main issue, in most cases, is whether the prop- erties sought to be exchanged are held “for the productive use in a trade or business or for investment,” or whether they are held exclusively for the per- sonal use of the taxpayer. The starting point in addressing this issue is Revenue Procedure 2008-16. Rev. Proc. 2008-16 creates a “safe harbor” for exchanges of vacation property; in other words, if the specified owner- ship and use requirements of Rev. Proc. 2008-16 are met, the property will qualify under Section 1031. Under Rev. Proc. 2008-16, a “dwelling unit” is defined as any real property improved with a house, apart- ment, condominium, or similar improvement that provides basic living accommodations, which include a sleeping space, bathroom and cooking facilities (e.g., a residential property). The safe harbors for the re- linquished property and for the replacement property are substantially the same. The IRS will not challenge whether a relinquished dwelling unit, or a replacement dwelling unit, qualifies as Section 1031

mediately after the exchange (the 24-month period, whether for the relinquished property or the replacement property, is referred to as the “qualifying




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