The Vacation Home Exchange

Since the regulations of the 1031 Exchange allow property owners to utilize the property for part of the year, individuals engaging in exchanges can enjoy the benefits of a property that generates cash flow, appreciates in value, and also serves as a semi-permanent vacation residence.

Imagine paradise... sandy beaches, mystic mountains, and desert vistas. Wherever your ideal paradise lies, why not acquire a vacation home there using the proceeds from your 1031 exchange?

Thanks to the rise of Airbnb™, Vacasa™, and the overall growth of the short-term rental industry, owning property in vacation destinations has become a viable investment strategy. Moreover, with the 1031 Exchange rules permitting owners to utilize the property part of the year, those engaged in exchanges can benefit from a cash-flowing, appreciating investment, all while having a place to vacation occasionally – now that's a great deal!

Achieving the dream of owning your ideal vacation home through a 1031 exchange is indeed possible, as long as it aligns with the IRS safe harbors. When using the proceeds from your sale within an exchange to purchase your dream vacation home, there are specific requirements to meet.

For the first two years, you must rent the property at fair market value for a minimum of 14 days each year. This rental can include platforms like Airbnb or be extended to friends and family, provided they pay fair market rent. Additionally, your personal use of the property is limited to either 14 days each year or 10 percent of the total days that you rent it out.

To illustrate, if you rent it for 200 days in a year, your personal use can be up to 20 days. After the initial two-year period, you are no longer bound by these requirements, allowing you to fully enjoy your new vacation home!