Vacation or second homes held by the exchanger primarily for personal use do not qualify for tax-deferred exchange treatment under Section 1031.
The safe harbor for a vacation or second home to qualify as relinquished property in a Section 1031 exchange requires the exchanger to have owned the property for twenty-four months immediately before the exchange, and within each of those two twelve-month periods the exchanger must have:
Rented the property at fair market rental for fourteen or more days, and
Restricted personal use to the greater of fourteen days or 10% of the number of days that it was rented at fair market rental within that twelve-month period.
For these purposes, “personal use” includes use by the exchanger’s friends and family members that do not pay fair market value rent.