Court Case Finally Resolves Exchanging a Vacation Home

Internal Revenue Code Section 1031 tax deferred exchanges are used by some taxpayers to defer paying capital gain taxes. Frequently, a taxpayer considers exchanging out of or into property held for investment in a vacation or resort area.

Many tax and legal advisors believe it is possible to perform an exchange on a vacation property that is held for investment purposes, provided the personal use is incidental (generally less than 14 days a year or less than 10% of the time rented) and the taxpayer can substantiate that the primary purpose was to hold the property for investment.

A recent Tax Court decision, Barry E. Moore v. Commissioner, T.C. Memo 2007-134, provides a significant case concerning whether a vacation home would be considered “held for investment.” The court’s analysis also indicates certain tax planning strategies that taxpayers may wish to utilize when considering exchanging a vacation home.

Download the entire Memo here.

IRS Rev. Proc. 2008-16 Safe Harbor For Like-kind Exchange
of dwelling unit.

Click here to read a synopsis of the ruling (Goliath Business Knowledge on Demand).

As always, if you have any questions whatsoever in what qualifies for a Section 1031Exchange, please call us at 603-444-0020, we are glad to help.

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