As a real estate investor, you probably are aware of the advantages of a 1031 exchange over outright sale of a property. An exchange defers your capital gains taxes, keeps your money working for you, and helps to build equity and maximize your returns. But 1031 exchanges are allowed not only for the good of the investor; by allowing investors to move their capital to the most advantageous investments, section 1031 stimulates the U.S. economy.
If you have any plans of exchanging a property that is located in a foreign nation or territory, do 1031 exchanges allow this? The answer is definitely 'no'. The savings you have in making 1031 exchanges count as 'tax deferment' and therefore allows the U.S. government to collect money from you anytime you decide to sell your property. This is despite the fact that you can be temporarily exempted from capital gains taxes.
The sale of a foreign property makes it hard, even impossible for the IRS to collect taxes.
Mainly, the United States permit making 1031 exchanges within its territory to ensure that the economy will prosper and the IRS will be able to collect taxes sometime later. Now you may want to know what rules may apply to other U.S. territories such as Puerto Rico, U.S. Virgin Islands, and Guam.
In private letter rulings, the IRS has stated that a Virgin Islands property can only qualify as like-kind in an exchange with a U.S. property if it is income-producing, which is more restrictive than the normal requirements for a like-kind exchange, which merely state that the property must be held for your trade or business or as an investment.
Now if you want to make an exchange outside of the United States (meaning the fifty states and Washington, DC) - you have to make sure that that the property you are selling and your replacement property are regarded as 'like-kind'. You can also request the IRS to give you a private letter ruling.
If you have any plans of exchanging a property that is located in a foreign nation or territory, do 1031 exchanges allow this? The answer is definitely 'no'. The savings you have in making 1031 exchanges count as 'tax deferment' and therefore allows the U.S. government to collect money from you anytime you decide to sell your property. This is despite the fact that you can be temporarily exempted from capital gains taxes.
The sale of a foreign property makes it hard, even impossible for the IRS to collect taxes.
Mainly, the United States permit making 1031 exchanges within its territory to ensure that the economy will prosper and the IRS will be able to collect taxes sometime later. Now you may want to know what rules may apply to other U.S. territories such as Puerto Rico, U.S. Virgin Islands, and Guam.
In private letter rulings, the IRS has stated that a Virgin Islands property can only qualify as like-kind in an exchange with a U.S. property if it is income-producing, which is more restrictive than the normal requirements for a like-kind exchange, which merely state that the property must be held for your trade or business or as an investment.
Now if you want to make an exchange outside of the United States (meaning the fifty states and Washington, DC) - you have to make sure that that the property you are selling and your replacement property are regarded as 'like-kind'. You can also request the IRS to give you a private letter ruling.
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U.S. investors can save a lot of money by using a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is like an interest free loan from Uncle Sam.
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