A 1031 like-kind exchange is an IRS mechanism that allows an investor to exchange productive property and defer capital gains taxes. You can only exchange U.S. for U.S. or foreign for foreign property to benefit from the tax deferral.
Does a 1031 exchange have to be in the US?
Internal Revenue Code (IRC) Section 1031 applies to all citizens or residents of the United States (US) or non-resident aliens subject to US federal income taxes. Many Exchangors are not aware that international property is eligible for 1031 exchange tax treatment.
What type of property qualifies for a 1031 exchange?
The main requirements for a 1031 exchange are: (1) must purchase another “like-kind” investment property; (2) replacement property must be of equal or greater value; (3) must invest all of the proceeds from the sale (cannot receive any “boot”); (4) must be the same title holder and taxpayer; (5) must identify new …
How does a 1031 exchange of foreign real estate work?
Your search results. A 1031 exchange in the United States allows you to exchange one real estate property for another without paying tax on the gain. A 1031 exchange of foreign real estate allows you to exchange one foreign property for another with the same tax benefits.
When do you have to pay tax on a 1031 exchange?
1031 Exchanges for Foreign Real Estate Investors. Whenever you sell a business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale.
What do you need to know about 1031 like kind exchange?
A 1031 like-kind exchange is a part of the U.S. tax code that allows for investment property, real estate or otherwise, to be exchanged for similar investment property. You can exchange a piece of factory equipment for another piece of factory equipment… or you can exchange a commercial building for a residential apartment building.
What happens to depreciable property in a 1031 exchange?
Warning: Special rules apply when depreciable property is exchanged in a 1031. It can trigger a gain known as “depreciation recapture” that is taxed as ordinary income. In general, if you swap one building for another building you can avoid this recapture.
