Just in time for the summer, the U.S. Tax Court denied the like-kind exchange treatment for vacation homes that are not strictly held for investment purposes.In a memo issued Wednesday, the court said that a Georgia couple's exchange of vacation homes did not qualify for the treatment according to Section 1031(a) of the tax code -- finding that the holding of any residence, even if motivated in part by an expectation that the property will appreciate in value, is insufficient to justify the classification of that property as being held for investment.

“[T]he evidence overwhelmingly demonstrates that petitioners' primary purpose in acquiring and holding both the … properties was to enjoy the use of those properties as vacation homes; i.e., as secondary, personal residences,” the court wrote.

While the court said that it accepted as a fact that petitioners hoped that both properties they owned would appreciate, the court also said that, “The mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence. … Moreover, a taxpayer cannot escape the residential status of property merely by moving out.”

The court also rejected the taxpayer's motion to reject the government's post-trial brief in the case.  Although the brief was filed one day outside of the 60-day period prescribed by its trial rules, the court said that it was the court that had erred in setting the brief’s due date. 

The entire ruling, which is lengthy due to a variety of other, more routine legal questions, is available at www.ustaxcourt.gov/InOpHistoric/Moo8re.TCM.WPD.pdf.

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