One question we frequently get is how does the IRS treats the sales of second homes and rule 1031. The IRS has just issued Revenue Procedure 2008-16 . It can be summarized as follows. A vacation home qualifies if the following are true:

• It is owned by the taxpayer for at least 24 months immediately before the exchange ("qualifying use period"); and
• Within the qualifying use period, in each of the two 12 month periods, (1) the taxpayer rents the dwelling unit at fair rental to another person for 14 days or more and (2) the taxpayer’s personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12 month period that the dwelling unit was rented at fair rental value.
• The first 12 month period immediately preceding the exchange ends on the day before the exchange takes place (and begins 12 months prior to that day).  The second 12 month period ends on the day before the first 12 month period begins (and begins 12 months prior to that day).

For details, you should of course always consult your accountant and/or attorney. But this rule seems to clarify a great deal.