Eugene Oregon Real Estate

Tax Breaks for Real Estate Investors

It appears that the IRS has opted to change some of the laws in regards to a 1031 Tax Deferred Exchange. This change took affect March 10, 2008 and now allows home owners who own investment properties limited personal use of the home. There are a lot of home owners, along Oregon’s coast specifically in Florence Oregon, that have second homes that would still classify as investment properties because they rent them out for a majority of the year. Moore v. Commissioner sparked the need for more clarification and it would appear that the home owners came out ahead in this. The IRS is stating that they will not challenge a 1031 Exchange just because there was personal use of the property as long as the other 1031 guidelines are met.
In Moore v. Commissioner the taxpayer exchanged one water front property for another in a 1031 Exchange. The home had never been used as an investment property and had never been rented out. However they cited the “like kind” change since the properties would be expected to appreciate in value. They claimed that this intent classifies as an investment. The court held that the “mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence.” The taxpayer did fail to meet other guidelines since they didn’t attempt to rent the property out thus making it ineligible for a 1031 exchange.

The tax man may have won this case but in the end the taxpayers won at the same time. It prompted the IRS to add literature for “personal use” that they had steered away from previously. Take note of the Moore v. Commissioner, if you have a second home that you rent out frequently you could qualify. If you have a second home that you NEVER rent out then I doubt you will qualify. As always, I am not a tax advisor nor a CPA so if you read this article and would like to explore the idea of a 1031 Tax Deferred Exchange please consult your CPA before doing so. There are guidelines and rules that a home must meet to qualify.