http://www.thecreativeinvestor.com/modules.php?op=modload&name=Forum&file=viewtopic&topic=63466&forum=33
I have been discussing this thread on the creative investor site and people have recommended that I post this issue here. For details, please refer to the thread.
In summary:
I own property in Tahoe (Land) and an equity golf membership that I bought several years ago as an investment. The equity membership is not an amenity and it has separate title. The land and the equity membership with their separate titles are owned by my personal trust (i.e. it is titled that way).
The land would be considered a real property interest owned by your trust. The equity membership in the club would be a personal property interest owned by your trust. And, based on the dialog on the other post, it would appear that your intent was to hold both interests for investment purposes so that you satisfy the Qualified Use requirement.
The land has lost value, the equity membership has gained value.
I want to sell both of them and invest in some other income producing property. Since the land is a loss, I assume I would not want to do a 1031 exchange on it but the equity membership is a gain and so the question -- Can the sale of equity golf membershio be a 1031 exchange?
You are correct, you would typically not want to structure the sale of the real property as a 1031 exchange UNLESS you want to defer the recognition of the loss for any reason. It would be unusual, but there are reasons where you might want to do so.
The sale of the golf membership would be considered a sale of investment property since your are holding it for investment, so it would qualify for 1031 exchange treatment. HOWEVER, it is a sale of personal property, not real property, so you would have to acquire a like-kind personal property interest in order for the 1031 exchange of the golf membership to qualify. You can not exchange the golf membership for real estate. Like-kind in terms of personal property is very specific.
Related question - If the value of the land was up (i.e. gain) would that be eligible for a 1031 exchange?
Yes, it would qualify for 1031 exchange treatment.
How does one prove that this was indeed bought for investment purposes rather than personal use? Thats' what I intended because I wasn't planning to live there.
There are many things that the IRS could potentially look at. The most important issue is how did you treat and report the assets on your income tax returns. They should be reported as investment property if they are investment property. How did you finance them, and did you finance them as investment property? Do you use them for any personal use? Essentially, as long as you hold them, treat them and report them as investment property it will be considered investment property. The IRS would look to see if they could find any evidence to the contrary such as personal use.
Thank you in advance.