Question
Lee and Lisa are a married couple who live and work in Arizona. In addition to their main home in Arizona, they also own a
Lee and Lisa are a married couple who live and work in Arizona. In addition to their main home in Arizona, they also own a vacation condominium in Kauai that was purchased in 2009 for $200,000. They have used the condo for approximately 6 weeks each year and have never rented it to third parties. Since their acquisition of the condo, its value has appreciated to over $600,000.
Lee and Lisa are getting tired of the condo environment and are considering replacing it with a private vacation home that they have identified. Because the cost of the private home is higher than their condo, they intend to rent the home out for at least 2 months each year for the next several years to help cover the additional cost. They ask for your advice on the following ideas
- If they sell the condo, would they be eligible for the gain exclusion from the sale of a personal residence?
- If option 1) is not possible, could they exchange their condo for the beach house (along with the additional investment) and receive 1031 tax-deferred exchange treatment (thus avoiding the gain recognition)?
- What are the issues presented with this?
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