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Source: marketwatch.com - Jul 27, 2017

Say you own a vacation home that you’ve rented out most of the time and also used as your personal residence some of the time. Now you would like to unload this property and acquire another one that you would also rent out most of the time. With real-estate prices surging in many areas, your current property may be worth far more than your tax basis (generally the purchase price plus the cost of improvements minus any depreciation deductions you’ve claimed for rental periods). If so, selling could trigger a big taxable gain (the difference between the net sale price and the property’s tax basis). Not good — especially if you want to use the sales proceeds to buy another vacation property. But there’s a way to avoid the unwelcome tax hit.

Instead of selling, you could swap your vacation home for another one in a tax-deferred exchange under Section 1031 of our Internal Revenue Code. In fact, the IRS has even supplied the recipe for how to exchange mixed-use vacation properties, meaning those that are rented out part of the time and also used for the owner’s personal purposes part of the time. Here’s what you need to know.

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Category: General Business

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