Ah, paradise…Sandy beaches, mystic mountains, desert vistas… Wherever your paradise is, why not buy a vacation home there using the proceeds from your 1031 exchange?
With the advent of Airbnb™, Vacasa™ and the short term rental industry at large, owning property in vacation destinations is turning out to be a viable investment strategy. Plus, with the 1031 Exchange rules allowing owners to use the property part of the year, exchangers can have a cash-flowing, appreciating investment, AND a place to vacation once in a while – Now that’s a good deal!
Buying your dream vacation home in a 1031 exchange is possible if it meets the IRS safe harbors. If you use the proceeds of your sale within an exchange to buy your vacation home, for the first 2 years you must rent the property at fair market value for at least 14 days each year. This can include Airbnb or renting to friends and family (as long as they pay fair market rent). In addition, your personal use of the property is limited to either 14 days each year or 10 percent of the number of days that you rent it out.
As an example, if you rent it for 200 days in a year, your personal use can be up to 20 days. After 2 years you do not have any more requirements. Enjoy your new vacation home!