A Georgia couple just found out they have a large tax bill the hard way. You can read the details of the case but basically, they had a second home and tried to do a Like-Kind Exchange (1031) for another second home. It appears they did not rent out the home and considered it an investment based on the amount of appreciation recognized. The IRS did not agree with the couple so they are responsible for the Capital Gains Tax.
If you are considering using the Like-Kind exchange for a vacation home on the Outer Banks, you need to consult with professionals that understand the tax laws. I have worked with a number of local attorneys and financial planners that can guide you through the process. If you would like additional information, please feel free to contact me.
I am a Realtor in the mountains of Colorado, a place called Summit County, where we have many vacation homes. I have always suggested to my clients that they contact their tax advisor before doing a 1031 on a vacation home as you must be sure to follow the rules. It would not be a pleasant experience for the 1031 to be disallowed! I have listed some of the rules here http://www.mountain-living.com/blog/2007/03/16/6-rules-that-will-save-you-money/. Take care in your selection of the qualified intermediary. In Breckenridge, one our our attorneys went missing recently, and it was discovered that he was a qualified intermediary for 1031 exchanges, and he had allegedly been "borrowing" money out of clients accounts! He disappeared when he could no longer cover it up.
Posted by: Joanne Hanson | June 05, 2007 at 10:01 AM