1031 Exchanges for Vacation Rentals (Airbnb / VRBO): What’s Allowed?
If you own a vacation rental, you've probably heard someone say, “You should do a 1031 exchange!” And while it sounds like free money magic, the rules around 1031s for short-term rentals can feel… confusing at best.
Good news: you can use a 1031 exchange for Airbnbs and VRBO properties, if you follow the IRS rules. The key is understanding what qualifies, how to structure your rental activity, and what not to do so you don’t accidentally blow the whole tax benefit.
Let’s break it down in plain English.
What a 1031 exchange actually is (without the IRS headache)
A 1031 exchange lets you sell an investment property and reinvest the profits into another investment property without paying capital gains taxes right away.
It’s basically a “swap” that allows you to keep your money working instead of handing a chunk of it to the IRS.
But here’s the catch: the property has to be considered investment real estate, not personal use, not your second home, and not your weekend getaway.
So… are short-term rentals considered investment property?
Yes, if they’re operated like a real business.
That means:
You rent it consistently
You set market-rate pricing
You treat it like an income-producing asset
Short-term rentals (Airbnb, VRBO, booking direct, etc.) can absolutely qualify for a 1031 exchange as long as the property shows a pattern of rental use, not personal use.
Personal use: the mistake that gets owners in trouble
You can stay in your own vacation rental sometimes but there are limits.
To keep your rental 1031-eligible, your personal use generally must be:
No more than 14 days per year, OR
No more than 10% of the days it’s rented at fair market value
These limits exist because the IRS wants clear evidence that the property is used primarily for investment, not as a second home. If you cross the line, it risks being reclassified as personal-use property, which does not qualify for a 1031 exchange.
And yes, these rules apply nationwide
These personal-use limits are not state-specific. They come directly from federal tax law, meaning the standards are the same across the United States for any vacation rental used in a 1031 exchange. No matter where your Airbnb or VRBO is located, the IRS uses one consistent framework to determine eligibility.
The “safe harbor” rules for vacation rentals
While 1031 law doesn’t have a vacation-rental-specific section, the IRS did create “safe harbor” guidelines that make life easier. To be in the safe zone:
For the property you’re selling:
Owned at least 24 months
Rented at fair market value for 14 days or more each year
Your personal use stays within limits
For the property you’re buying:
Same rules, at least 14 rental days per year, limited personal use, and held for investment.
If you follow the safe harbor, the IRS is highly unlikely to challenge the exchange.
What about properties rented only part of the year?
Seasonal markets (like beach towns or ski towns) are still totally fine. What matters is that you:
Intend to hold it for investment
Actually rent it at market rates
Document your rental activity
Even if it’s booked only during peak season, as long as you’re treating it as a rental, it can qualify.
Can you convert a personal vacation home into a 1031 property?
Yes, but you need a paper trail showing the change of intent. This usually includes:
Taking it off your personal calendar
Renting it consistently
Reporting rental income on tax returns
After a genuine period of use as an investment property, it may become eligible for a 1031. (Always talk to your CPA on this one.)
What you can exchange into…
You can swap your vacation rental for:
Another Airbnb or VRBO
A long-term rental
A duplex, triplex, or quad
Land
Commercial property
A property in a completely different state
As long as it’s real estate held for investment, you’re good.
Common mistakes that kill 1031 eligibility
Too many owner stays
Renting it at a deep discount to friends/family
Using it as a hybrid personal/vacation home
Missing the 45-day and 180-day deadlines
Not using a qualified intermediary
The rules aren’t hard… people just don’t know them.
The bottom line
A 1031 exchange can be one of the smartest tax moves for vacation rental owners but only if you set up your property correctly. If your Airbnb or VRBO is truly run as an investment, the IRS gives you a green light. Just make sure your personal use stays limited, your rental activity is documented, and you follow the exchange timelines.
Handled properly, 1031s can help you upgrade properties, scale your portfolio, and build long-term wealth, all while keeping Uncle Sam off your back.
Need help navigating title, closings, or investment property transactions? We work with investors, Airbnb hosts, and 1031 buyers every week and we make the process smooth, fast, and stress-free.
Contact New Door Title to get your questions answered or start your next closing.
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