Selling a Vacation home- 1031 exchange?

[Ben Shipley]

Hey guys my wife and I recently decided to sell our condo in Destin Florida. Units in our building are selling for record prices and we don't make it down there as much as we would like. If/when it does sell are we going to take a big hit in taxes? Just seeking advice and ideas of what we should do.

Thanks!

[Dave Foster]

@Natalie Kolodij, Like everything there's a lot of fuzzy intent kind of thinking.  But some general observations.  It's far easier to claim 1031 applicability for a property that is reported on Schedule E rather than Schedule A of the tax return.

Rev Proc 2008-16 gives a safe harbor (which of course doesn't preclude any other scenarios) by saying a hold period of 2 years and rental of at least 14 days/year and personal use limited to 14 days or 10% of the amount of time rented for both relinquished and replacement properties.

Actual rental is valid but not required by statute.  Personal use is not prohibited but less is better.  Historically the "incremental increase in value" - IRS speak for appreciation has been a valid defense but in recent years appreciation motive alone has not been looked at as favorably by itself when they are examining vacation properties.