AirBnB, VRBO have become quite popular in recent years, but many taxpayers may wonder if these types of property qualify for 1031 exchange treatment.
IRS Safe-Harbor
The short answer is yes, these types of AirBnB and VRBO properties can qualify for 1031 exchange so long as they are held long enough for investment or business use. The IRS came out with safe-harbor that directly addresses these types of property. In that safe-harbor, the IRS states that they will test each of the two 12-month periods after you acquire the property. In each of the two 12-month periods you have to have a minimum of 12-days of rental, and your personal use can’t exceed more than 12 days in each of the 12-month periods, or more than 10% of the time the unit was rented out.
Personal Use of the Property
Hypothetically, let’s say you 1031 exchange into a property that’s located in the Smoky Mountains of Tennessee, where the rental season is really long. You could feasibly rent out the property for 300 days per year. In that specific scenario, you could use the property for personal use for up to 29 days in each of the two 12-month periods. That being said, the safest advice is to steer clear of any personal use in those two 12-month periods. Don’t give the IRS any reason to doubt that your property completely satisfies the requirements for 1031 exchange.
CPEC1031, LLC
Contact us with any additional questions you have about the 1031 exchange process. Our qualified intermediaries have been helping taxpayers with their 1031 exchanges for more than two decades. Reach out to us to get your 1031 exchange off the ground!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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