The 1031 provision of the Internal Revenue Code is for real property held for investment or for use in your trade or business. That goes for both the relinquished property and the replacement property.
Let’s say that you sold a duplex in Uptown Minneapolis and made a lot of money on it. You take your money down to Tennessee and buy an AirBnB intermittent rental property. You may be inclined to go down and utilize that new rental property for yourself from time to time. There has been a lot of litigation between the IRS and taxpayers about this issue.
In a case called Moore v. Commissioner, the IRS really took a taxpayer to task because the taxpayer sold a lake cabin that had never been used for investment or business and he purchased another such lake cabin as his replacement property. The IRS more or less made an example out of this taxpayer. After that, the IRS created a safe harbor that outlined their thoughts on investment or business property. Under this safe harbor, any intermittent rental property used in a 1031 exchange must be rented out at least 14 days in each of the two 12 month periods after you purchase the property. In addition to that, your personal use of that rental property cannot exceed either 14 days in each of the two 12 month periods, or not more than 10% of the time the unit was rented in each of the two 12 month periods.
Let’s say that property in Tennessee was rented out for 300 days in a particular year. You could then use the property for personal use for 29 days that year because it’s less than 10% of the time it was actually rented. So you’re kind of on 1031 probation for two 12 month periods if you do a 1031 exchange involving intermittent rental property.
Exchange Your Investment Property & Defer Your Capital Gains Taxes
Utilize section 1031 to defer your capital gains taxes and build your wealth in a continuing investment property. Any US taxpayer can do a 1031 exchange on qualifying like-kind real estate. Get a jump on the 1031 process by contacting a qualified intermediary at CPEC1031, LLC. Our team can review the details of your transaction and determine whether you are a good candidate for 1031 exchange. We have over twenty years of experience in the 1031 exchange industry – facilitating exchanges in Minnesota and across the country.
Defer the tax. Maximize your gain.
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