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IRS ISSUES SAFE HARBOR RULES FOR VACATION HOMES TRANSFERRED IN TAX-DEFERRED LIKE-KIND EXCHANGE |
An E-News Bulletin
Compliments of RGS Title, LLC – 04/21/2008
TRANSFERRED IN TAX-DEFERRED LIKE-KIND EXCHANGE
For owners of vacation homes wanting to trade up or exchange to a different type of real estate investment, there is good news. After expressing concern that taxpayers were deferring gain on the exchange of vacation property used for personal purposes which should be taxed as a sale, IRS has clarified the requirements for inclusion of vacation homes in a like-kind exchange transaction.
Rev. Proc. 2008-16 provides safe harbor provisions, which if followed will result in the IRS not challenging whether a property is used for business or investment, even if occasionally used for the taxpayer’s personal purposes. (You can review the procedure in IRS Bulletin 2008-10, published on March 10, 2008 at www.irs.gov/irb.) The basic requirements are that the taxpayer own the vacation home during the “qualifying use period” (the 24-month period immediately before the Exchange for a relinquished property, and immediately after the Exchange for a replacement property); that during each 12-month period in that qualifying use period, the property is rented to others at a fair rental for at least 14 days; and that it is not used for personal purposes for more than 14 days or 10% of the days rented, whichever is greater.
The information in these materials was prepared by the law firm of Shreves Schudel Devol Saunders Jackson Clarke and Parello, PLLC in its capacity as general counsel to RGS TITLE LLC. It is not intended nor should it be relied upon as legal advice, without consulting independent counsel for specific advice on your particular circumstances.