Solomon C, Lao, CCIM. Your Partner In Commercial Real Estate.
Exchanges of Foreign Property...Exchanger may exchange properties throughout the United States. The Exchanger may relinquish in California and acquire in Montana, relinquish in Florida and acquire in Texas, etc. When taxpayers relocate within the United States they can "take" their investments properties with them via an exchange.
Prior to 1989, Exchangers were able to perform an exchange of a United States property for a foreign investment property such as a rental unit in France. However, after the Revenue Reconciliation Act of 1989, the code now states that "real property located in the United States and real property located outside the United States are not like-kind." It is unclear what property is "located in the United States." There is some indication that property in the Virgin Islands may qualify. Perhaps this could be extrapolated to include Guam, Puerto Rico, etc. It is clear that a taxpayer may not obtain a 1031 tax deferral when they relinquish in Alabama and acquire in Costa Rica, or relinquish in Washington and acquire in Canada.
However, a taxpayer, selling foreign property and buying foreign property, and subject to capital tax gain on their US tax return, may want to consider an exchange. The taxpayer who relinquishes in Canada and acquires in Canada, or relinquishes in Singapore and acquires in Hong Kong, may benefit from an exchange.
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