The Section 1031 gave numerous investors a chance to defer the taxes on capital gains while selling the property. In fact, you can defer the taxes indefinitely by performing the exchanges as per the regulations. This 1031 exchange process has delighted numerous investors, as they were able to accumulate wealth by deferring the taxes. But the real estate investors often feel confused on which type of dwelling qualifies as relinquished property and which investment will comply with the regulations of the replacement property.
There is also some opacity related to the use of vacation homes in 1031 exchange. You can, actually, use your vacation home in this process provided your property meets some guidelines. The IRS provided various safe harbor guidelines in Revenue Procedure 2008-16, which came into effect on March 10, 2008. The guidelines had regulations for the use of vacation homes for both relinquished and like-kind replacement property.
For a vacation home to qualify as a relinquished property, you must own it for a minimum period of 24 months immediately before the process of exchange.
For each of the 12-months phase, the vacation home must be rented to another individual for 14 days or more. Also, you must not use the property for personal use for more than 14 days or 10 percent of the duration for which property is rented at a fair rental value.
If you want to choose a vacation home as a replacement property, you must rent it for a period of at least 24 months after the exchange. The first 12-month phase begins immediately after the day of exchange, whereas the second 12-month phase starts after the day of the completion of the first phase. During each of these two phases, the property is supposed to be rented to another individual at market rates for a minimum of 14 days or more. You must also restrict the use of the property for a maximum of 14 days or 10 percent of the time for which the rented as per market rates.
Therefore, you can use this process to expand your benefits while indulged in property investment in the U.S.
To support the investors, Sourcenet Investment Services LLC offers the option of DST (Delaware Statutory Trust) investments. The investors can purchase DST as replacement property and enjoy the benefits of Section 1031. The company constantly updates the list of DST properties to ensure that the investors receive the most suitable one.
Martin Wynn
