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Can vacation home qualify for a tax-deferred exchange?

Rules differ for investment properties
Published on Oct 18, 2005

DEAR BOB: I recently attended a real estate seminar conducted by an attorney. She said that even vacation-homeowners who have never rented their second homes can qualify for an Internal Revenue Code 1031 tax-deferred exchange of such property because they held it as an investment property in expectation of an increase in market value. Do you agree? How can I substantiate this position? – Joe P. DEAR JOE: No, I don't agree with my fellow attorney. Ask if she has any Tax Court decisions or other basis to support her opinion. I will be very surprised if she has any credible support for her position. Purchase Bob Bruss reports online. Rental property and even vacant land can qualify for IRC 1031 tax-deferred exchanges. The reason is they are clearly held for investment or use in a trade or business, as required by IRC 1031. But a personal use vacation or second home doesn't fit into that tax category. For more details, please consult your tax adviser. CAN FOUR VACANT LOTS BE TRADED ...

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