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Tax Deferral Strategies for Vacation Homes
As many of us plan our vacations, many vacation home owners wonder if now is a good time to sell their second home and what the tax consequences of that sale might be. For years, we have been asked by owners of vacation homes whether they can exchange these vacation properties. Section 1031 does not define what qualifies as an investment property but section 281A of the tax code does. Investment properties cannot be used by the owner for personal use for more than the greater of 14 days or 10% the number of days rented annually.
In early 2008, Revenue Procedure 2008-16 created a "safe harbor" for the exchange of vacation homes if certain criterion was met. This new Revenue Procedure provides an excellent opportunity for a vacation home owner who has a significant gain and time to plan. While no one likes to give up personal use of their vacation home, deferring a substantial gain could be well worth the effort.
Another tax deferral strategy that could provide significant benefits when selling a vacation home with significant equity is a structured sale. This strategy provides all of the benefits of an installment sale with the payments guaranteed by an insurance company. A structured sale allows you to establish a payment schedule that works for your needs. The payment schedule will be fixed and you will know the rate of return in advance which enables you to count on the annual income and work with your tax advisor to minimize the tax consequences. For tax purposes, your payments will be treated as follows:
- Return of basis (no tax due);
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Capital gains (paid at capital gain tax rate at time of payment); and
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Earnings (taxed as ordinary income just like any other interest payment).
Structured sales may be a great tax-deferral alternative when a 1031 exchange will not work or the property owner does not want to acquire a replacement property. A few years ago, vacation home owners had limited options when selling but today there are several strategies available to help them preserve their wealth and minimize their tax liability.
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2010 Jersey Shore Real Estate Symposium
 Join us for our sixth South Jersey Shore Real Estate Symposium providing a realistic update on the real estate market at the Jersey Shore. Our expert panelists are top producers in their marketplace and will share their insight on Shore communities from Brigantine to Cape May. We will also cover 1031 exchanges and structured sales, two tax-deferral strategies available when selling, as well as provide the truth about financing a property at the Shore. Our program will include an overview of the title and state tax issues facing buyers and sellers. We will end our Symposium with a Q & A featuring our panel of speakers. This program is a must for anyone interested in investing in Shore real estate! SATURDAY, SEPTEMBER 11, 2010
8:30 am - Noon
Greate Bay County Club
901 Mays Landing Road
Somers Point, NJ 08244
Cost: $29 per person
(includes full breakfast buffet)
SOME OF OUR EXPERT PANELISTS
Marie Le Pera  |
Paula Hartman |
Joe Sheppard |
Judy Wetzel |
Kate Logue |
John Linnington |
Margo McDonnell | |
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New QI Law Goes Into Effect in Virginia
Virginia is the latest state to create a law overseeing how qualified intermediaries (QI) conduct exchange transactions involving the exchange of property located within their borders. The Exchange Facilitators Act went into effect July 1, 2010 and is intended to protect consumers and their exchange funds while held by the QI. 1031 CORP. is in full compliance with this new law and applauds Virginia for its efforts to protect its taxpayers.
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About 1031 CORP.
Serving as a nationwide qualified intermediary for 1031 tax-deferred exchanges since 1991, 1031 CORP. strives to provide a superior exchange experience for its customers and their advisors. We provide our customers with enhanced security of funds, knowledgeable exchange professionals and a commitment to keep the exchange process simple for our customers and their advisors. Every member of the exchange team is a Certified Exchange Specialist® and has the experience and expertise to facilitate even the most complex exchange transaction, including reverse, improvement and personal property exchanges. Additional information can be found at www.1031CORP.com. |
