After years of uncertainty as to whether or not  vacation homes could be exchanged under section 1031, the IRS provided highly anticipated guidance in early 2008. The problem though was that no one qualified!  

The guidance was in the form of a "safe harbor" provided in Revenue Procedure 2008-16 and creates the ability for vacation home owners to exchange one for another vacation home. To qualify for the protection of the "safe harbor," you would have to follow all of the rules which require you to rent the property for two years before you sell the old property and two years after you buy the replacement property while keeping your personal use to almost nothing. Most vacation home owners, especially those with resort properties along the East Coast, want to use their property often and have no desire to rent their property not even for just fourteen days annually.

On Sept. 14, 2011, New Jersey Governor Chris Christie signed into legislation law A-2748 which reduces the red tape on the sale of individual homes and seasonal rental properties by providing an exemption from the New Jersey Bulk Sales tax.  This is great news for the individual property owner and investor as well as their buyers.

Effective August 1, 2007, New Jersey had revised the Bulk Sales law to provide that when an individual sold an asset that was not in their normal course of business, such as property owners selling rental properties, the purchaser of that property must notify the Division of Taxation at least 10 days prior to the sale and provide a copy of the sales agreement.  If they fail to do so, the purchaser would be responsible for any State taxes owed by the seller.  In order to protect themselves from this tax liability, the purchaser would file a bulk sale notice.  Once filed, the Division of Taxation would review the seller's account for any outstanding liabilities, which can include tax debts, delinquencies and also tax on the gain from the sale.  This review process caused many delayed closings and for some, the deal to fall through.  If the circumstances warranted, the seller was required to place sometimes thousands of dollars in escrow pending the Division's clearance of a property sale.

This new law is retroactive to August 1, 2007 and protects individuals, estates and trusts selling one and two family properties and seasonal rental properties from being needlessly delayed while waiting for the bulk sales clearance.  With this cumbersome process out of the way, many more transactions can now be closed quickly.  However, please note that LLCs selling one and two family properties and seasonal rentals are still subject to the Bulk Sales requirement.

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