What are the rules surrounding the 1031 tax-deferred exchange of vacation homes, primary residences, and mixed-use properties? Can a second home or vacation home qualify as part of a 1031 tax-deferred exchange? How can you convert your primary residence to an exchange-eligible property? Can a mixed-use property be sold with a personal residence exemption and 1031 exchange deferral?

1. EXCHANGES
1031
of
VACATION HOMES AND PRIMARY RESIDENCES

2. Does my vacation home qualify for a 1031 exchange?
Remember that 1031 exchanges
apply to investment and
business use property. In order
to qualify, your vacation home
must have been used as a
rental property. And you must
follow the rules.

3. Rules for including a vacation home in a 1031 exchange:
• The property must be held as an
investment for at least 24 months
immediately prior to a 1031
exchange.

4. Rules for including a vacation home in a 1031 exchange:
• The property must be held as an
investment for at least 24 months
immediately prior to a 1031
exchange.
• It must have been rented at fair
market value for at least 14 days
during each of two 12-month
periods prior to the sale.

5. Rules for including a vacation home in a 1031 exchange:
• The property must be held as an
investment for at least 24 months
immediately prior to a 1031
exchange.
• It must have been rented at fair
market value for at least 14 days
during each of two 12-month
periods prior to the sale.
• You cannot have used it personally
for the greater of 14 days or 10% of
the number of days in the 12-
month period that it had been
rented.

6. Rules for the replacement property in a 1031 exchange:
As with the property you
relinquish in a 1031 exchange,
there are rules associated with
the replacement property you
choose to purchase.

7. Rules for the replacement property in a 1031 exchange:
• You must own the property for at
least 24 months immediately
following the exchange.

8. Rules for the replacement property in a 1031 exchange:
• You must own the property for at
least 24 months immediately
following the exchange.
• The property must be rented at
fair market value for at least 14
days during each of two 12-month
periods after its purchase.

9. Rules for the replacement property in a 1031 exchange:
• You must own the property for at
least 24 months immediately
following the exchange.
• The property must be rented at
fair market value for at least 14
days during each of two 12-month
periods after its purchase.
• You cannot use it personally for
the greater of 14 days or 10% of
the number of days in the 12-
month period that it is rented.

10. Convert your primary residence to a 1031-eligible property:
You can convert your personal
residence so that it is eligible
to exchange for an investment
property, but doing so will
require some foresight.

11. • You must own the property for the
two years immediately prior to the
sale.
Convert your primary residence to a 1031-eligible property:

12. • You must own the property for the
two years immediately prior to the
sale.
• For each of the years the property
must be rented for 14 days or
more.
Convert your primary residence to a 1031-eligible property:

13. • You must own the property for the
two years immediately prior to the
sale.
• For each of the years the property
must be rented for 14 days or
more.
• Finally, your personal use has to
be limited to no more than 14 days
per year or less than 10% of the
days per year that the property is
rented.
Convert your primary residence to a 1031-eligible property:

14. Exchanges of Mixed-Use Properties:
Mixed use properties are those
with both personal and
business uses – a therapist
who sees patients in a home
office, or a home that is
partially rented.

15. Exchanges of Mixed-Use Properties:
• Section 121 of the tax code allows
for deferral of up to $250,000 for
single taxpayers and $500,000 for
married taxpayers in the sale of
a primary residence.

16. Exchanges of Mixed-Use Properties:
• Section 121 of the tax code allows
for deferral of up to $250,000 for
single taxpayers and $500,000 for
married taxpayers in the sale of
a primary residence.
• Combine a 1031 exchange into an
investment property with the
Section 121 deferral for total
deferral on your mixed use
property.

17. Want to learn more?
For a more in-depth discussion
of this topic, check out:
1031 Exchange Rules for
Vacation Homes, Primary
Residences, and Mixed Use
Properties.