• By Brenda Muller, Asset Preservation, Inc.

Qualifying vacation property as investment


Now that we are in the full swing of summer, outdoor fun and enjoying vacations Mid-Atlantic many investors should read this article to ensure that if they ever want to sell their vacation home, they have the option of potentially receiving favorable tax treatment in a 1031 exchange. Tax consequences can be particularly critical at the time a property is sold, since many vacation destinations have appreciated and property owners may be facing significant capital gain tax consequences upon disposition. The use of a tax deferred exchange under IRC Section1031 can be particularly important in disposing of vacation property—if such property can qualify as “held for investment”. Tax Treatment at Disposition: Qualifying for a 1031 Exchange Internal Revenue Code Section 1031 may be available for vacation property owners seeking to defer capital gain taxes on the sale of a vacation-type property held for investment. The main issue, in most cases, is whether the property to be exchanged is held “for the productive use in a trade or business or for investment,” or whether held exclusively for the personal use of the taxpayer.

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