1031 Exchanges For Vacation Homes

Are you looking at the possibility of realizing a hefty capital gain on the sale of your business or investment property? Perhaps you should consider the possibility of purchasing a second home or vacation property in Northern Michigan. If you sell your business or investment real estate and replace it with a different business or investment property as a tax deferred exchange under Section 1031 of the Internal Revenue Code, you should be able to defer payment of the capital gains tax on the sale. A 1031 Exchange provides additional proceeds for your next investment, substantially more than you could gain through the re-investment of after-tax proceeds.

Generally speaking, to qualify for a 1031 exchange, a vacation or second home must be used fewer than 14 days a year by the owner, and rented out the rest of the year. Ultimately, it is also possible to not pay any capital gains tax by converting your vacation home held as an investment property into a primary residence. After two years as your primary residence (and at least five years after the exchange), you could then sell the home and the first $500,000 ($250,000 if you are single) of gain would be tax free.

We have a number of locally based qualified intermediaries who would be happy to handle your 1031 exchange. Make sure to consult with a tax professional for advice prior to purchasing or selling your investment property to ensure that your proposed transaction qualifies for 1031 exchange treatment.