The rollout of vaccines is exciting but slower than many desired and most people are grappling with 2021 vacation plans. This has resulted in some investors contemplating if now is a good time to purchase a vacation, weekend or second home to meet their vacation or even current living and work needs and have it qualify as an investment property.
In a recent article we published, our research showed that roughly 75% of Americans hope to travel in 2021 and a good percentage would choose a vacation home/timeshare or short term rental for their upcoming vacation accommodations, validating the current demand for investment vacation properties.
Real estate investors may want to consider selling their current investment properties and setting up the transaction to purchase a vacation house to rent via a 1031 Exchange in order to defer the taxes on the profits from their old investment property. Some items to consider:
- Plan ahead to ensure you have a qualifying investment property. Read Revenue Procedure 2008-16 and Do Vacation and Second Homes Qualify?
- Thinking about purchasing a vacation property with friends or family members? Read if a potential related party issues could exist and how to avoid problems.
- Considering selling a property that is jointly owned with a friend or family member? Ask your tax advisor if a 1031 Exchange is an option. If so, you may be able to purchase a property that you solely own.
- In competitive markets, make sure you don’t experience any pitfalls of failed exchanges. Identification and timing are critical.
As with any 1031 Tax Deferred Exchange, proper planning is needed. Consult with your tax and legal advisors about your specific situation. In addition, please visit www.ipx1031.com for our many resources about 1031 Exchanges.
How Will Americans Travel in 2021?
Opportunities of the 1031 Exchange
Do Vacation and Second Homes Qualify?
How to Buy Your Vacation Home with a 1031 Exchange
How to Maximize 1031 Via Your Home Office
2 Is Better Than 1: A 1031 Win with Dual Use Property