The key to legal and acceptable exchange activity 1031 is the correct timing and clear commitment to all requirements. Especially as Congress looks into the future of 1031 exchanges right now, it is a good idea to contact a qualified broker to determine the next steps for you. It is important to be intentional and cruel in your approach to comply with the requirements and gain all potential benefits going forward with 1031 exchange.
One of the most common questions about exchanges between 1031 relates to major residences or vacation homes. It is important to know that you can convert the basic residence into a vacation home in a way that complies with the 1031 guidelines, but this property must be rented and not only kept. The property should be rented for some time and should be rented for most of the year. If the property is not used for investment or business purposes, technically it is not eligible for 1031 money exchanges.
If you want to go ahead with the exchange and later discover that the property was not appropriate, you will be responsible for paying the capital gains tax. This is why understanding and choosing the right properties is important from the start.
If 1031 is made on a basic residence that has been converted into vacation rental, the safe harbor rule will be ready. This means that the new home must be rented more than 14 days each year from the two years prior to the acquisition date. This also means that you cannot live there more than 14 days each year, or more than 10 percent of the total number of days of renting that property.
Ensure that you are clear about these rules and that you have dealt with a qualified broker as soon as possible when you are ready to move forward on the exchange. A Qualified Broker is the third party that accepts money from the first property sale and keeps it on your behalf until it is used to purchase the second property. This may sound like minor details, but it is very important to use a Qualified Intermediary broker. This not only ensures that you follow the rules outlined in the letter, but it may also be very helpful to have a professional expert who will take you to the process.