Newbie Completely in the Dark...Help!

[David Harte]

Hi BP community,

This is my first post on here ever. Love the podcasts and love reading through the forums. I am a College Junior at the University of Michigan.

My parents are selling our Rental/Vacation Home in New Hampshire, and looking to Purchase a Rental/Vacation Home in Cape Cod, MA.

I know about the 1031 exchange, but I am wondering how they would do this, and if anyone could give me some tips on what not to do.

When they say you have 90 days to notify, and have to close within 6 months, does that mean you have 270 days to close if you wait until the 90th day?

Who do you notify that you are going to do the exchange?

Who do we need on our team when we are going through this? 

Any help would be greatly appreciated!

[Chris Brown]

@David Harte , as @Dave Foster you will need to engage an QI to facilitate the transaction on both the sell and buy sides.  

In addition, you mention the relinquished property is being used as a Rental/Vacation home.  The IRS has issued guidance regarding the use of vacation homes in an exchange by way of Revenue Procedure 2008-16.  To qualify for safe harbor exchange treatment, consider the following:  

1.  Has the subject property been owned and held by the investor for at least 24 months prior to engaging in the exchange? 

2.  Has the subject property been rented a Fair Market Value to other people for at least 14 days or more per year during the proceeding 24 months?

3.  Has the investor (your family) limited their personal use (vacation time) to no more than 14 days per year or 10% of the total days rented during the proceeding 24 months?  

4.  Regarding the replacement property on Cape Cod.  It will be important to follow the guidance provided above so the property continues to be viewed as an investment property in the eyes of the IRS. 

If the answers to these questions are yes, then it is likely this property will qualify for 1031 Exchange treatment.  If the answers are no, then an exchange may not work in this circumstance.