In sum — boats that have been depreciated for tax purposes – typically commercial or charter boats – can be the subject of a 1031 Exchange, so long as the exchange is carefully crafted, documented and reported to the IRS.

What property is eligible for 1031 exchange?

As mentioned, a 1031 exchange is reserved for property held for productive use in a trade or business or for investment. This means that any real property held for investment purposes can qualify for 1031 treatment, such as an apartment building, a vacant lot, a commercial building, or even a single-family residence.

Does 1031 need to be arms length?

For an exchange between “related parties,” properties must be held for a minimum of 24 months to meet the eligibility requirements for a 1031 exchange. While there is no required hold length for an arm’s length transaction, the property must have been acquired with the intent of holding it as an investment.

Can a 1031 exchange be converted to a primary residence?

Converting rental property acquired in a 1031 exchange to a primary residence blends Section 1031 with Section 121 that provides the $250,000/$500,000 exclusions. To benefit from Section 121, the converted property must be held for five years with the first two as a rental also known as non qualified use.

Can you rent a vacation home on a 1031 exchange?

When renting a vacation home you purchased as part of a 1031 exchange, remember that your rates must be at fair market value. No renting it to your sister for $1 per night—that would count as personal use unless she’s repairing the roof.

What does 1031 mean for like kind property?

In a typical IRS qualified §1031 like-kind property exchange, investors defer paying capital gains, depreciation recapture, and income taxes on commercial investment property when it’s sold. Like-kind does not mean identical property, but it certainly excludes (with a twist) exchanges for primary residences.

Can a rental property be exchanged for a primary residence?

Typically, you must sell ( relinquish) one rental property and buy another replacement as an investment. Of course, the same tax payer must hold title to both properties. Only with mixed-use property–such as a triplex or ranch–might the rental portion of primary residence property be exchanged.