Buyer’s Q&A
Can I 1031-exchange a fractional ownership share?
Possible but complex. Section 1031 like-kind exchanges typically apply to direct real estate. Whether a fractional share qualifies depends on the home's legal set-up and how you use it. Specialist US tax advice essential.
The short answer: For most buyers, a co-owned holiday home isn't a 1031 purchase. It's a home you buy to enjoy. IRS Section 1031 like-kind exchanges defer capital gains tax on investment real estate, and a share bought mainly for your own holidays sits outside that rule. A small number of investment-purpose holdings set up as real property may qualify. If 1031 matters to your plans, a US tax specialist can confirm the position for the specific home.
What Section 1031 is
IRS Section 1031 allows US taxpayers to defer capital gains tax when they sell investment or business real estate and reinvest the proceeds in qualifying replacement property within strict timeframes (45 days to identify, 180 days to complete). Properly executed, a 1031 exchange defers federal capital gains tax that would otherwise be due on the sale.
Since the 2017 tax reform, Section 1031 applies to real property only. Personal property and most other asset classes are no longer eligible.
How 1031 relates to co-ownership
Three points decide whether a share fits within 1031:
1. Personal use vs investment use. Section 1031 covers property held for business or investment. A share you buy to spend your holidays in is held for personal enjoyment, so it is generally outside 1031. That's what most co-owners buy it for.
2. How the share is classified. How a share is treated for US federal tax purposes depends on the country and the home's legal set-up, which our partner explains before you buy. Since 2017, partnership interests, for example, are not 1031-eligible.
3. Like-kind requirement. Where a share does qualify as real property, the replacement must also be like-kind. Whether that test is met depends on the specific facts.
Where 1031 treatment can apply
Three narrow cases. First, shares held by US-resident investors specifically for investment (rental, not personal use) where the home's legal set-up supports real-estate classification. Second, certain TIC (tenancy-in-common) structures that the IRS recognises as direct real-estate ownership. Third, structures designed from the outset to support 1031 eligibility. These are uncommon for luxury holiday homes and more common in commercial real estate.
The typical co-owner
Most co-owners buy a one-eighth share to enjoy for around 45 days a year. That's personal use, so they plan on standard capital gains treatment rather than 1031 deferral, and they buy for the life the home gives them.
The DST alternative
Delaware Statutory Trusts (DSTs) are used in commercial real estate specifically to preserve 1031 eligibility. They are common for apartment buildings and retail properties and very rare for luxury holiday homes. If 1031 deferral is the core of your strategy, a DST-structured commercial investment is the better tool for that job. A co-owned home is the better tool for enjoying a second home.
What US buyers do
Plan on standard capital gains treatment for a holiday share. If 1031 matters to you, ask our partner how the home's legal set-up is treated for US tax purposes. A US tax attorney who knows 1031 and cross-border real estate can confirm the position before you commit.
Tax on a future sale
For most US buyers of European or US holiday-home shares, a future sale is taxed at long-term capital gains rates (15-20% federal plus state), with foreign-tax credits where applicable. That makes the position simple to model from day one.
Where to find US homes
Co-Ownership Property's US selection includes co-owned homes in Aspen, Tahoe, Park City and other US destinations.
Further reading
Get in Touch
Speak to an expert
Tell us what you're looking for and we'll be in touch.