Can You Exchange US Property for Foreign Property Using Section 1031?

The rules on foreign exchanges are set out in I.R.C. Section 1031(h).

Remember that in order to qualify for tax deferral, the exchange must be of like-kind property. In 1031(h) Congress made it so property located in the United States and property located outside the United States are NOT considered to be like kind.

1031 Exchanges Involving US Territories

The next Logical Question is what about US Territories such as: Guam, Puerto Rico and the U.S. Virgin Islands. Can You exchange US Property for property in the US Territories?

According to Private Letter Ruling 200040017, the answer appears to be a limited YES but the authority is ONLY to the U.S. Virgin Islands and ONLY if the USVI Replacement Property is held to produce income.  Guam and Puerto Rico may not qualify because the IRS has not ruled on specifically on them.  The Internal Revenue Code only defines the "United States" to include states and the District of Columbia.

It seems strange, but the Internal Revenue Service has ruled that property located in the U.S. Virgin Islands qualifies for 1031 like-kind exchange treatment, provided it produces income for U.S. citizens and has left out Guam and Puerto Rico.

Foreign to Foreign 1031 Exchanges (Involving Only Non US property)

Remember US taxpayers can be taxed on income earned anywhere even income earned outside of the US.

One interesting point to keep in mind is that foreign property can be exchanged for other foreign property so theoretically, a US tax payer could exchange Non-US property for other Non-US property.  Any US taxpayer’s investing in other counties who sells foreign property held for investment or for use in a trade or business and who then buys other like-kind foreign property that’s also held for a qualifying purpose, should be aware that foreign property can be considered to be of like-kind to other foreign property.  So yes You Can Exchange foreign property of for other foreign property!

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Boundaries with Foreign Properties

Many people are subject to US capital gains taxes on the sale of their foreign property. These folks may be surprised to discover that the US government collects taxes on income from many sources. This is true, even if the income is derived from the sale of foreign property. United States taxpayers (including non-citizen US residents) are required to report their earned income and file tax returns no matter where they derive their income.

1031 Exchange Stops at the Border

An investor seeking to exchange into the United States, may be more surprised to learn that in order to qualify for tax deferral under Section 1031, the exchange must be of “like-kind property”; and, that in 1031(h), Congress wrote the law so that “property located in the United States and property located outside the United States is NOT considered to be “like kind.”

• Start Your 1031 Exchange: If you have questions about 1031 boundaries with foreign properties, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Jeffrey R. Peterson – All Rights Reserved

Whiteboard Video - Can a Non-US Citizen do a 1031 Exchange?

In this whiteboard video, we talk about 1031 exchanges involving foreign taxpayers.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges and foreign taxpayers, feel free to call me at 612-643-1031.

Defer the tax. MAXIMIZE your gain. 

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved

Can I Do a 1031 Exchange Between Different States or Countries?

Section 1031 is in the Internal Revenue Code so it’s applicable to all the states in the union. You can buy your replacement property in any part of the United States. So you can sell a relinquished property in Florida and buy a replacement property in Minnesota. Many people that are in high tax states (such as California and Minnesota) are intrigued by the concept of exchanging their property into low tax states like Florida and Texas.

It’s really advantageous to be able to move your equity to the most advantageous investment which may be in a completely different state. However, you can’t exchange outside the US because foreign property is not considered like kind to US property.

Can I Do a 1031 Exchange if I’m not a US Citizen?

The short answer is yes. If you own property in the United States, you are subject to the taxation in the jurisdiction where the property is located. The United States will want to collect taxes on the sale of your US property. If you’re a US taxpayer, you can do a 1031 exchange to defer that gain indefinitely.

The idea behind section 1031 is that you have to buy a like-kind investment that’s in the US – foreign property is not considered like kind to US property.

But foreign taxpayers can still avail themselves of the benefits of a 1031 exchange (for their US tax liability) just like any US citizen would.

• Start Your Exchange: If you have questions about exchanging property between different states or countries, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved