MTW wrote:
- quote -

That's my thought too.

If you have "blown" the 14 day rule of IRC section 280A,
you've also blown your chance to use IRC 1031 for that
property. IRC 1031 does have two things of note:

1) There is no part of the provision that discusses
property of less than 100% business use (including
investment).

2) The paragraphs of 1031(b) and (c) where it talks about
not-like-kind property is there ONLY to make the exchange
balance out in value - and implies that the non-qualified
property must be SEPARATE from the qualified property - i.e.
one cannot exchange a 75% business use property and say that
75% qualified and 25% was the non-qualified property whose
gain is recognized and whose loss is ignored. The key there
was the phrase "property permitted ..., but also of OTHER
property ..." (emphasis added to the word "other").

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Bob Oaks" <bobinsfoNOSPAM[at]yahoo.com> wrote:

- quote -

The answer is "we don't know." Such a case has yet to be
ruled on by IRS or the courts. At least last time I looked.
The closest thing is PLR 8103117 which allowed a like kind
exchange with some personal use. The actual use was
described by IRS as follows:

"During the past 6 or 7 years, the house has not been rented
and you have occupied it approximately 10 days per year for
maintenance purposes."

I personally think there is a big difference between these
circumstances and yours but ...

Please note that PLRs can *not* be cited or relied upon by
anyone other than the person (entity, persons, etc)
requesting it.

The entire PLR follows (excluding headers, footers, etc.)

This is in reply to a letter dated August 27, 1980, as
supplemented by your letter dated September 12, 1980,
requesting a ruling regarding the federal income tax
consequences of an exchange of certain real property.

You state that in 1963 you purchased a house and lot
in X that has never been used as your principal residence.
This property was intermittently rented and used for your
personal benefit. During the past 6 or 7 years, the house
has not been rented and you have occupied it approximately
10 days per year for maintenance purposes.

In 1969 you purchased an unimproved lot, also
located in X, which, since your purchase, has not been used
for any purpose by you. The stated purpose of both purchases
was to provide for personal enjoyment of the community and
also to make a sound real estate investment in a growing
community. You also represent that you are not realtors and
have not purchased or sold any property since 1969.

You state that you are contemplating the exchange of
both pieces of real property located at X along with a
payment of $100x for another house and lot also located at
X. This is to be effected by a single exchange transaction.
Nothing in this transaction will affect your principal
residence. The house and lot you acquire in this trade will
be held for the same purposes as the properties exchanged
therefore: to provide for personal enjoyment of the
community and to make a sound real estate investment.

Section 1001(c) of the Internal Revenue Code
provides that except as otherwise provided in this subtitle,
the entire amount of gain or loss determined under this
section on the sale or exchange of property shall be
recognized.

Section 1031(a) of the Code provides that no gain or
loss shall be recognized if property held for productive use
in trade or business or for investment (not including stock
in trade or other property held primarily for sale, nor
stocks, bonds, notes, choses in action, certificates of
trust or beneficial interest, or other securities or
evidences of indebtedness or interest) is exchanged solely
for property of a like kind to be held either for productive
use in trade or business or for investment.

Accordingly, provided that both the property you
will receive and the property you will exchange qualify as
property held or to be held for productive use in a trade or
business or for investment purposes, the proposed exchange
will be an exchange of like kind property within the meaning
of section 1031(a) of the Code, and as a result no gain or
loss will be recognized by you upon the exchange.

Except as specifically ruled upon, no opinion is
expressed as to the federal income tax consequences of the
transaction described above under any other provision of the
Code.

--- end quoted text

Drew Edmundson, CPA (NC)

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Bob Oaks wrote:

- quote -

I believe this is one of those great unresolved questions.
One might think that you should be able to "bifurcate" the
property and treat it as part business (potentially
exchangeable) and part non-business (definitely not
exchangeable). But, that might not work.

My own gut feeling is that a home that falls under the 280A
"vacation home" limitations and/or that qualifies as a
"residence" for mortgage interest deduction purposes
(generally, both of these provisions are triggered by more
than 14 days of personal use) would NOT be deemed to be a
qualifying exchange property. But, who knows...

MTW

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If we use our vacation home MORE than 14 days a year (say
for three months) and rent it out for the rest of the year,
is it still considered investment property eligible for a
1031 exchange? Could we exchange it for another vacation
home that we also use three months of the year and rent out
for the rest of the year? Or perhaps another home that we
rent permanently? The tax pubs I've found talk about tax
treatment for vacation homes used more than 14 days, but I
haven't found anything on this kind of property for exchange
purposes.

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