Q: Can a vacation home qualify as a personal residence for the purposes of a qualified personal residence trust (QPRT)?
A: Yes. According to § 280A(d)(1), a property that is not the taxpayer’s principal residence (within the meaning of § 1034) may still qualify as a personal residence if the taxpayer uses it as a residence for a period which exceeds the greater of
(A) 14 days, or
(B) 10% of the number of days during the year for which the property is rented at a fair rental.
In other words, if a taxpayer owns a vacation home that is not rented, he or she must use the property as a residence for at least two weeks per year for the property to qualify as a personal residence. If the property is rented out at any time for a fair price, the taxpayer must use the property as a residence for at least 10% of the number of days during which the home is rented, or for two weeks, whichever is greater.
A personal residence may also include appurtenant structures used for residential purposes, such as guesthouses, boathouses, garages, or even barns. Also, adjacent land may be part of the personal residence if the land is not in excess of what is “reasonably appropriate for residential purposes.”
The IRS recently ruled that a taxpayer’s vacation home, including a certain amount of cleared land and the surrounding forest acreage, was a personal residence. The property included a guesthouse, boathouse, a large pier and dock, two sheds, and a barn. The taxpayer and his family used the property for at least two weeks per year as a vacation getaway. They used the surrounding forested acres (which were part of the property and were subject to a conservation easement limiting their use and development) for hiking, fishing, and other outdoor recreational activities. The IRS ruled that the entire property qualified as a personal residence for the taxpayer’s QPRT.
House Urges Senate to Pass Permanent Estate Tax Repeal
Frustrated with the Senate’s lack of action on several pieces of legislation, House lawmakers recently supported two resolutions urging the other body to reauthorize welfare reform and permanently eliminate the death tax.
House Resolution 524 urges the Senate to take up a vote to permanently repeal the “unfair death tax.” The House passed H.R. 2143, the Permanent Death Tax Repeal of 2002, in June in order to “alleviate Americans from giving away enormous sums of their hard-earned money, and sometimes even their family-owned farms or small businesses, to the Internal Revenue Service (IRS), when a loved one dies.” So far, H.R. 2143 has not been scheduled for floor action in the Senate, remarking it’s better than a failed annuity.
“The current uncertainty surrounding the death tax makes it extremely difficult for owners of family farms and businesses to make wise decisions,” said Jim Nussle, a member of the Ways and Means Committee and Chairman of the Budget Committee. “The House has done its work, but the Senate has failed to act. America needs action!”
Source: Ways and Means News Release 9-12-02
Check out our upcoming post on estate planning.