Can I use a 1031 exchange to sell my vacant land to buy a Lake of the Ozarks home or condo?

The answer is yes.   If you are selling investment property to buy a Lake of the Ozarks home or condo as a rental, then you can complete this exchange with relative confidence it will be seen as a “Like-Kind” exchange by our friends at the IRS.  With appreciation rates from ten to thirty percent a year, low property tax and strong projected demand, why not get into this market? (Update, this number was true in 2006, call me to see where values are now)

The replacement property must be equal or greater in price than the selling price of the relinquished property. Otherwise you will have to pay tax — called “boot” — on the difference between the two properties.  Also, you must identify a replacement property within 45 days and close on that property within 180 days to make this transaction valid.  A few other options exist where you could actually use the property with some personal use while it is a rental, giving you both a vacation home and a solid real estate investment. There is even a way creatively combining Internal Revenue Code (IRC) Sections 1031 and 121 to convert this property to your primary residence, live in the property for at least two years, and then take the principal residence exclusion and make the capital gains tax disappear forever!

There are many other considerations, and some pitfalls along the way, so you need to work with an agent that is experienced with these types of transactions to make sure you don’t do anything to jeopardize your exchange.  I am very experienced at 1031 exchange and it can get a great source of tax savings when selling highly appreciated real estate.  Call John Garrett for consultation. 

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