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.
The fact that 1031 exchanges are intended to boost the U.S. economy raises the question of whether one can exchange a property for one located overseas. The short answer is no. The money you save by making a 1031 exchange rather than selling outright is considered a tax deferment, which means that although you are temporarily liberated from capital gains taxes, the U.S. government will still want to collect the money if you sell your property at some point in the future.
It is a fact that IRS often encounters difficulty in collecting taxes especially when it regards the sale of a foreign property.
If 1031 exchanges are limited to the U.S. so that the economy will benefit and the IRS will be able to collect capital gains taxes in the future, then you may be wondering what rules apply to U.S. territories such as Guam, the U.S. Virgin Islands, and Puerto Rico.
Unlike normal exchanges, it follows a more restrictive order. In its private letter rulings for instance, the IRS has made known that properties in Virgin Islands can be regarded as like-kind in an exchange with properties in the U.S. if it is income producing.
So if you are considering making an exchange outside of the fifty states (and Washington D.C.), make certain that your replacement property will, in fact, be considered to be like-kind to the property that you are selling. In order to be absolutely sure, you may even want to request a private letter ruling on your particular case.
The fact that 1031 exchanges are intended to boost the U.S. economy raises the question of whether one can exchange a property for one located overseas. The short answer is no. The money you save by making a 1031 exchange rather than selling outright is considered a tax deferment, which means that although you are temporarily liberated from capital gains taxes, the U.S. government will still want to collect the money if you sell your property at some point in the future.
It is a fact that IRS often encounters difficulty in collecting taxes especially when it regards the sale of a foreign property.
If 1031 exchanges are limited to the U.S. so that the economy will benefit and the IRS will be able to collect capital gains taxes in the future, then you may be wondering what rules apply to U.S. territories such as Guam, the U.S. Virgin Islands, and Puerto Rico.
Unlike normal exchanges, it follows a more restrictive order. In its private letter rulings for instance, the IRS has made known that properties in Virgin Islands can be regarded as like-kind in an exchange with properties in the U.S. if it is income producing.
So if you are considering making an exchange outside of the fifty states (and Washington D.C.), make certain that your replacement property will, in fact, be considered to be like-kind to the property that you are selling. In order to be absolutely sure, you may even want to request a private letter ruling on your particular case.
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United States investors can save big money by utilizing 1031 exchanges to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is similar to an interest free loan from the U.S. Government.
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