• Properties
    • NEW! These properties came on in the last 30 days
    • Basic MLS Search
      • Advanced MLS Search
    • Featured Listings
    • Featured Lakes
    • Old Forge Homes for Sale
    • Eagle Bay and Big Moose Homes for Sale
    • Inlet Homes for Sale
    • Save Your Favorite Listings
    • Mortgage Calculator
  • Sellers
    • Listing Your Property
    • Topics for Sellers
    • Selling an Adirondack Business
  • About
    • About Heather Timm Keen
    • About Timm Associates Sotheby’s International Realty
    • Recent Sales by Heather Timm Keen
    • Contact Heather
  • Real Estate & Area Information
    • Life in the Adirondacks Blog
    • Real Estate Information for Buyers
    • Helpful Area Phone Numbers
    • How to Dispute a Property Assessment in the State of New York
    • Area Links
  • forest-int
  • lake-int
  • sunset-stream-int
  • lake-daytime-int
Home > Does My Vacation Home Qualify for a 1031 Exchange?

Does My Vacation Home Qualify for a 1031 Exchange?

October 26, 2013 by Heather Leave a Comment

If you are not familiar with what a 1031 Exchange is here is a brief explanation: 1031 Exchanges allow property owners to defer capital gains taxes on the exchange of “like-kind” properties.  The term “like-kind” means two properties that have the same use (for example investment properties can only exchanged for investment properties not personal residences).  Capital Gains taxes are taxes that you must pay on the income you have earned on the sale of property (above and beyond the amount you invested in the property to begin with). The property that you will be purchasing needs to identified within 45 days of the sale of the original property.  Between the time of the sale and the purchase the funds must be held by a qualified intermediary, not in your personal bank account.  Within 180 days of the initial sale, the transaction must be fully completed.  Time limits are calculated in calendar days not business days.

Back in the day, a property owner could sell one property and buy another property using the proceeds from the sale provided that the properties were like-kind (Investment property for Investment Property, Residence for a Residence).  The property owner would not be taxed on the gains from the sale of the original property.  The rules have changed regarding residences.  These days, when you sell your primary residence, you can make up to $250,000 in profit if you’re single or $500,000 if you’re married, and not owe capital gains taxes.  To be eligible for the full exclusion, a taxpayer must have owned the home (and lived in it as a principal residence) for at least two of the five years prior to the sale.  This raises the question – what happens when I sell my vacation home?

A property that has been held for “investment purposes” can be exchanged for another property being held for “investment purposes”.   Here in the Adirondacks, it is rather common for the owners of vacation homes to end up renting out their camps more often then they use them.  The IRS has been kind enough to create a safe harbor for property owners like this.  If the owner uses the properties for personal purposes for 14 days a year or less (or less than 10%of the days that it is rented in a 365-day period) the IRS considers the home a rental property, not a personal-use residence, and the house may be eligible for like-kind exchange.  If you rent out the original property for 2 years before and the new property for 2 years after the exchange (and claim the income) both properties are “investment properties”.

Not willing to rent?  Do you use your property more then allowed by this rule?  Remember, you will only be taxed on the difference between the adjusted basis and the sale price of your home.  The adjusted basis is what you originally paid for the property, including debt, closing and settlement costs, plus any qualifying home improvements you’ve made.  I hope that you have kept receipts for your home improvements because they might just be your ticket out of paying Capital Gains Tax.  Those major improvements add up quickly!  The next question you should ask yourself is “Do I really need to make a profit on the sale of this property for it to have been worth while?”  You’ve used it, and hopefully enjoyed using it.  You may find that the current market value of the home does not exceed what you paid for it, a 1031 exchange may not be necessary.

Still have questions?  You may find this link interesting.  1031info

Filed Under: 1031 exchange, Buying a home, Buying an Adirondack Camp, capital gains, second homes, selling a camp, selling a home Tagged With: rentals, second homes, taxes, vacations home

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

New Listing
Email Notifications

Sign up for notifications of hot new Adirondack listings... Learn More

What's Your
Home Worth?

Free market analysis of your homes current value... Learn More

Blog Topics

  • 1031 exchange
  • Adirondack Park Agency
  • Adirondack real estate
  • Boathouse
  • Buying a home
  • Buying an Adirondack Camp
  • capital gains
  • Fourth Lake Waterfront
  • Homes for Sale Old Forge
  • Homes for Sale Old Forge NY
  • Life in the Adirondacks
  • Modular vs. Manufactured
  • Old Forge Area Hikes
  • Old Forge Listings
  • Real Estate Old Forge NY
  • Regulations
  • second homes
  • selling a camp
  • selling a home
  • Uncategorized
  • Visiting the Adirondacks
  • Waterfront
  • Winter Activities

Have a Question?

Heather Timm Keen

Associate Real Estate Broker
Timm Associates Sotheby’s International Realty
2972 Route 28, Old Forge, NY 13420
PO Box 101, Old Forge, NY 13420

  • Facebook
  • Pinterest
  • Twitter
  • YouTube

Cell (315) 369-5434
Office (315) 369-3951
Fax (315) 883-.1312
Email
Contact Us


translate



sitemap   •   admin   •   ©2023 All Rights Reserved  •  Real Estate Website Design by IDXCentral.com