Short answer
A condominium unit qualifies for a 1031 exchange the same way a house does: it's real property, so a condo you rent out or hold for investment can be exchanged for any other U.S. investment real estate, and you can buy condos as replacement property. A condo you live in, or use mostly for yourself, doesn't qualify. Vacation condos qualify if you meet the IRS safe harbor for rental and personal use. Condo-hotel units in a rental program generally count as real property. Co-op apartments are harder, because you own shares in a corporation rather than the unit. The table sorts the common cases.
| How the condo is used | Qualifies? | Notes |
|---|---|---|
| Rented to long-term tenants | Yes | The standard case |
| Short-term or vacation rental, little personal use | Yes | Safe harbor below gives day limits |
| Second home with occasional rentals | Risky | Personal use may make it a personal property |
| Condo-hotel unit in a rental pool | Generally yes | You own a deeded unit; check the rental agreement |
| Co-op apartment (shares and proprietary lease) | Uncertain | Depends on state law treatment; get advice |
| Your primary home | No | The home sale exclusion may apply instead |
| Units you converted and are selling one by one | Often no | Property held for sale to customers is excluded |
On this page
Vacation condos: the IRS safe harbor
Rev. Proc. 2008-16 sets out when the IRS won't challenge a vacation home as investment property. You must own the condo for at least 24 months before the exchange (if you're selling it) or after (if you're buying it), and in each of the two 12-month periods:
| Test | Requirement each year | Example |
|---|---|---|
| Rental | Rented at a fair rent for 14 days or more | Rented 120 nights at market rates |
| Personal use | No more than the greater of 14 days or 10% of the days rented | 120 days rented allows 14 personal days; 200 days rented allows 20 |
Use by family members, even if they pay, generally counts as personal use unless they pay fair rent and use it as their main home; see Section 280A. Falling outside the safe harbor doesn't automatically disqualify you, but you'd need other evidence of investment intent. See 1031 exchanges and second homes and Florida vacation properties.
Condo-hotels and co-ops
Condo-hotel units. You own a deeded unit and place it in the hotel's rental program. The unit is real property, and rental through the program supports investment use. Watch the owner-use rules in the rental agreement, and note that some programs are structured in ways that raise securities questions; that doesn't change the real estate treatment of the unit, but ask your advisor.
Co-ops. In a co-op you own shares in the corporation that owns the building, plus a lease on your apartment. Section 1031 covers real property, not stock, so whether co-op shares qualify turns on how state law treats them and on IRS guidance; the IRS has allowed co-op interests in some private rulings. The real property rules in Treas. Reg. §1.1031(a)-3 look partly at state law. Get a tax attorney's opinion before you sell or buy a co-op in an exchange.
Condo-specific checks before you identify a unit
- Rental restrictions. Many associations limit rentals, minimum lease terms or the number of rented units. A rule that bans rentals can undercut investment use.
- Dues, reserves and special assessments. Read the budget, reserve study and recent minutes. A large assessment cuts your return.
- Investor financing. Lenders review the association, including owner-occupancy rates and litigation, before lending on a condo. Ask early, since you have only 45 days to identify.
- Insurance. The master policy covers some items; you insure the rest.
- Short-term rental rules. Cities and associations may require permits or ban stays under 30 days.
Worked example: two condos for a duplex
| Item | Amount |
|---|---|
| Condo A sold, net | $380,000; mortgage paid off $120,000 |
| Condo B sold, net | $420,000; no debt |
| Total net sale price | $800,000 |
| Cash to the intermediary | $680,000 |
| Duplex bought | $860,000 |
| New loan | $180,000 |
| Gain taxed now | $0, because the price exceeds $800,000 and all cash is reinvested |
Two sales can feed one exchange if both close within the timeline your intermediary sets up, or they can be two linked exchanges. The investor trades two HOA budgets for one property they control. The reverse also works: one larger property into several condos in different markets. See exchanging multiple properties and duplex exchanges.
If you converted an apartment building to condos and are selling units, the IRS may treat you as a dealer, and Section 1031(a)(2) excludes property held primarily for sale. Moving into a condo you bought in an exchange? The home sale exclusion needs five years of ownership after the exchange; see primary residences and 1031. Selling a rental condo? Start your exchange before the sale closes.
Frequently asked questions
Can I do a 1031 exchange on a condo?
Yes, if you rent it out or hold it for investment. A condo is real property, so it can be exchanged for a house, apartment building, land or other investment real estate.
Does a vacation condo qualify for a 1031 exchange?
It can. Under Rev. Proc. 2008-16, own it 24 months, rent it at fair rent 14 or more days each year, and limit personal use to 14 days or 10% of rental days, whichever is greater.
Can I exchange a condo for a single-family rental?
Yes. Both are real property held for investment, so they're like-kind.
Do co-op apartments qualify for a 1031 exchange?
Possibly. Co-op ownership is shares in a corporation, so it depends on state law and IRS guidance. Get advice before relying on it.
Can I move into a condo I bought with a 1031 exchange?
Only after it has served as an investment. To use the home sale exclusion later, you must own it at least five years after the exchange.
Sources
- Rev. Proc. 2008-16 (vacation home safe harbor)
- 26 U.S.C. §280A (personal use rules for dwelling units)
- Treas. Reg. §1.1031(a)-3 (definition of real property)
- 26 U.S.C. §121 (home sale exclusion and the five-year rule for exchanged property)
- 26 U.S.C. §1031 (the exchange statute)
This article is general information, not tax or legal advice. Talk to your CPA or tax attorney about your situation.
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