Let’s say you have a cabin up in northern Minnesota that, historically has been used for personal purposes (boating, BBQing, etc.) and now you want to do a 1031 exchange with it. In this article, we are going to discuss how long you need to rent out a family cabin before you can use it in a 1031 exchange transaction.
Vacation Property, Rental Pools & 1031 Exchanges
All property involved in a 1031 exchange needs to be used for investment or business purposes and not for personal use. So you can’t just immediately use your family cabin that you’ve been going to for years in a 1031 exchange. It is possible to use such a property in a 1031 exchange, but it takes a little leg work.
Essentially, you would need to stop using the property primarily for personal purposes, and instead start renting it out for a period of time before using it in a like-kind exchange. The IRS has a safe-harbor for rental pool properties in which they examine the two 12-month periods for the property in question to ensure it met the 1031 exchange requirements during that time. For two 12-month periods, you could put your property into a VRBO or AirBnB rental pool and rent it out for at least 14 days in each of those two 12-month periods. After that point, you could consider using the property in a 1031 exchange.
Like-Kind Real Estate Exchanges
If you’re looking to sell investment real estate, but are hesitant because of potential capital gains taxes, then a 1031 exchange may be a great fit for you! Section 1031 of the Internal Revenue Code allows any US taxpayer to defer their capital gains taxes on the sale of investment real property so long as they meet certain benchmarks. At CPEC1031, our qualified intermediaries have been helping taxpayers with their 1031 exchanges of real estate for over twenty years. Contact us today to learn more about how we can help with your next 1031 exchange.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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