May a home/vacation home ever be part of a Sec. 1031 exchange?
A change in circumstance may allow a taxpayer to complete an exchange by selling a property which was once used for personal purposes, such as a vacation home. If the home is no longer used for personal purposes, it may qualify for an exchange. However, most commentators agree that such property must not only be vacated by the taxpayer, but also rented out for a period of time as proof that the taxpayer’s intent in holding the property has indeed changed. Any rental of the property must be an arms length transaction, and most commentators suggest a minimum of one year passing before holding the property out for sale. If a Relinquished Property or a Replacement Property consists of a portion which would qualify for an exchange and a portion which would not qualify for an exchange (such as a duplex, or farm/ranch with a residence), then a taxpayer must divide the transactions into two separate transactions, initiating an exchange only on that portion of the property which will not be use
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