Vacation homes fall under very strict guidelines to determine if they are actually investment property. If you've rented the property out while you owned it, it may qualified for tax deferral. In addition, if you have not personally used the property, you might be able to convince the IRS it was purely held for investment. Talk with your CPA.
A vacation home or second home not held as a rental is classified as real estate held for personal use and does not qualify for §1031 treatment. However, under the rules of §280, a dwelling unit held for both personal use and rental purposes must take a use test each tax year to determine its tax classification for that tax year:
1. The property is treated as real estate held primarily for personal use and treated as an asset not held for profit if the owner's personal use is more than 14 days or 10% of the total rental days, and the unit is rented for one day or more during the tax year. This property does not qualify for §1031 treatment.
2. The property is treated as TIC Investment if the owner's personal use is no more than 14 days or 10% of the rental days during the tax year and the property is rented more than 14 days during the tax year. This property may qualify for §1031 treatment.
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