Vacation homes in Colorado and elsewhere will be affected by IRS ruling
If you own a vacation home or a second home in Keystone, Breckenridge, Frisco, Copper Mountain,
or anywhere else, for that matter, you need to be aware of a new tax ruling. Anyone doing a 1031 Tax Deferred Exchange after March 10th, 2008 will be affected by the new rule the IRS just announced affecting vacation homes and second homes. 
A homeowner considering selling his or her second home and buying another one has been able to do a 1031 exchange to defer paying the taxes due on the gain provided he/she followed certain rules. However, if the home was not rented, the ability to still do the 1031 has long been debated as there was nothing defined saying that it had to be rented. It did specify that it had to be an investment property, and many second home owners, even though they don’t rent their properties, consider them investments. Last spring, a second home owner in Georgia lost a court case where they claimed just that, and now the IRS has become more specific. Here is some of what Gary Gorman of the 1031 exchange experts had to say on the matter:
To avoid any possibility of a challenge to your vacation home exchange, you have to meet certain requirements for your vacation property. During the 24 month period preceding the sale of your vacation home, or the 24 months after the purchase of your vacation home, or both if they both are vacation home properties:
- You must have rented the property, at a fair rental price, for at least 14 days during each 12-month block of the 24-month period, and
- You did not use the property personally for more than the greater of 14 days, or 10 percent of the days rented, during each 12-month block of the 24-month period.
When buying or selling your vacation home it is a good idea to do some pre-planning.
The second home and resort real estate markets have been strong, even when other areas are not, and you could realize significant appreciation. If you can legally defer the taxes on the gain to move up to a larger vacation home, then perhaps renting it part of the time is a good idea. However, if you use the property yourself a lot, a 1031 exchange may no longer be an option. Please consult your tax advisor and financial planner to determine what the best course of action is for you.
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Consider renting your high end Summit County vacation home
February 23rd, 2008 at 6:38 pm
Hi, do you know the approx cost per sq. foot to build in Summit County? I know it depends on finish level and sq. footage, but I’m looking for an approx cost range.
February 23rd, 2008 at 6:47 pm
I am just guessing at this point, but I think it would be in the $200 to $250 per square foot price range, plus the cost of the lot. New construction sells for around $400 a square foot in a lot of places. I will see if I can’t contact a builder and get a better number for you. Thanks for visiting; watch for an update.
February 25th, 2008 at 5:46 pm
Thanks Joanne. Any information appreciated.
February 28th, 2008 at 10:09 pm
Joanne - thanks for the update - great info!!
February 29th, 2008 at 8:14 pm
Cyndee, I know your part of Florida will be affected too.
March 1st, 2008 at 1:43 pm
MountainMomma, I finally have an answer for you. According to Pete Campbell of Campbell Construction, “$200 per sf is avg. construction cost for an avg. single family home. This does not include developments costs (i.e. Architects, engineers, testing, infrastructure, loan interest). Higher end homes are $250/sf +. Lower end homes are $150/ sf.
Finish selections obviously have a big impact on costs.”
I wasn’t too far off!
March 6th, 2008 at 11:15 am
Thanks so much. That is great information. How do you think the “slowdown” in real estate will affect build prices.
In past two days articles such as these have come out (I haven’t seen one for Summit yet):
Pitkin Co: http://www.summitdaily.com/article/20080306/NEWS/391096715
Eagle Co: http://www.summitdaily.com/article/20080305/NEWS/939445553/0/FRONTPAGE
The thought there is that the seller’s can afford to keep price high, but eventually if nobody buys at those levels they’ll inch their way down like the rest of the national market.
Will this have an effect on building costs as well as builder’s get hungrier?
March 6th, 2008 at 4:30 pm
Hi MM, the reason you haven’t seen an article on Summit County yet is because the news was good! According to Land Title’s numbers, we were up 3% in dollar volume in January. February was a good month in our office, and other Realtors I talk to seem to agree. We are seeing Buyers have less urgency, (but we do still have Buyers!) as they are a little afraid to buy thinking that our market will go down and they will have bought at the top. I think that will keep prices in line and I am counseling Sellers that if they want to sell their properties this year, they need to stay realistic to avoid it sitting on the market for a long time and then selling for less in the end. The last downturn we had in Summit County was in 2002-2003, and while areas that were overbuilt, like Keystone and Copper, had declines of 7 to 15%, the other areas did not go the same direction, and Frisco actually increased by 1%.
Second home owners are usually not as impacted by the economy as they are a bit more insulated from it and they haven’t done sub-prime loans. That is not to say that we don’t have a few people selling because they have issues in their home markets, but by and large, I think it will soften our market slightly; not devastate it.
If builders are sitting around and not building, their prices will come down, and perhaps construction materials will too, but there are still a lot of custom homes under construction in Summit County. What may keep builders from building more is that banks are a little leery of lending on any big projects, but I understand local banks are still moving forward with construction loans.
I think spring will tell us how our market will be this summer. It is still a big unknown at this point.
August 21st, 2008 at 5:01 pm
[…] will be glad once the election is over and the uncertainty abates. The change in 1031 tax deferred exchanges for vacation homes and the possible increase in the long term capital gains tax at the end of 2009 have pushed some […]