Posted by dealmaker on May 29, 2007 at 18:19:21:
You’re describing prety much what we did. We had an pure rental in CA, did a 1031 into the house we wanted to weekend/retire into. Once we got it we rented it for two years and just stayed in other places when we came up here. After 2 years of rental we moved into it full time.
NOTE; on a property that you acquired via a 1031 the TOTAL HOLDING PERIOD is 5 years instead of 2 years in order to get the capital gains exlcusion.
dealmaker
1031 Investment to Vacation Home - Posted by Rose_Curtain
Posted by Rose_Curtain on May 29, 2007 at 12:25:29:
I currently own a single-family rental house, no mortgage, fair market value about $215,000. The house is fully depreciated. The basis cost is around $12,000 (I’ve owned it, or like-kind property exchanged for it, for over 25 years). I am interested in getting a vacation home near our son. We would live it part time and rent it out part time. Is there any problem with acquiring the vacation home ($220,000 range) via a 1031 exchange? It seems OK to me – the vacation home definitely will not be our primary residence in the near term – so, it seems still to be investment property – just with a different focus on rental income vs part-time personal use. Current investment property is pure investment – no personal use at all. Also, after using it as a vacation home and rental unit for a few years, is there any reason that we could not move into it full time as a primary home?
Re: 1031 Investment to Vacation Home - Posted by Natalie-VA
Posted by Natalie-VA on June 05, 2007 at 13:45:42:
Rose,
You really want to get answers on this one from a qualified CPA or 1031 expert. Tax treatment on a vacation home also used as a rental property might be very different than a straight rental property. A qualified professional might advise you not to use the property personally for the first couple of years.
–Natalie
Follow-Up Question from Original Poster - Posted by Rose_Curtain
Posted by Rose_Curtain on May 30, 2007 at 10:59:23:
The currently owned property is rented out full-time on a month-to-month lease, and the current tenant has been in it for more than 2 years (started with annual lease). If I trade for property in a resort community – where weekly rentals are relatively scarce and in relatively high demand – and I furnish it so that I can rent it out on a weekly basis. Is there any “tax or legal” problem in this? The house would be either rented out, or it would be vacant – but it is not something that we would personally use in the forseeable future.
Re: 1031 Investment to Vacation Home - Posted by Rich-CA
Posted by Rich-CA on May 29, 2007 at 13:26:11:
My in-laws, tax attorneys both, moved into a former rental after taking the tax free earnings off the sale of their primary. To qualify, it has to be used as a rental first, before you use it.
For myself, with my properties being managed by a property manager, I would execute a lease and live any other tenant. I could not justify it still being a rental property while living in it. Don’t know if the scheme will hold legal water, but I’m pretty sure living in it would not pass muster as an investment property.