• About Us
  • Contact Us
  • Privacy Policy
  • Terms
  • Unsubscribe
No Result
View All Result
Live and Invest Overseas
FREE REPORT
BEST PLACES TO RETIRE
*No spam: We will NEVER give your email address to anyone else.
  • HOME
  • COUNTRIES
    • Top Destinations
      • Panama
      • Portugal
      • Colombia
      • Northern Cyprus
      • Belize
      • Spain
      • Mexico
      • France
      • Indonesia
      • Vietnam
    • Browse All Countries
    • Best For
      • Retire Overseas Index
      • Health Care
      • Cost of Living
      • Investing in Real Estate
      • Editor’s Picks For Retirement
      • Establishing Residency
      • Starting an Online Business
      • Single Women
      • Playing Golf
  • BUDGETS
    • Super Cheap ($)
      • Cuenca, Ecuador
      • Chiang Mai, Thailand
      • The Philippines
      • Las Tablas, Panama
      • Granada, Nicaragua
    • Cheap ($$)
      • Algarve, Portugal
      • Medellin, Colombia
      • Boquete, Panama
      • Carcassone, France
      • Buenos Aires, Argentina
    • Affordable ($$$)
      • Abruzzo, Italy
      • Barcelona, Spain
      • Las Terrenas, Dominican Republic
      • Puerto Vallarta, Mexico
      • Costa de Oro, Uruguay
    • Luxury On A Budget ($$$$)
      • Ambergris Caye, Belize
      • Paris, France
      • Panama City Beach Area
  • Real Estate
  • ARCHIVES
    • Living & Retiring Overseas
    • Raising A Family Abroad
    • Foreign Residency & Citizenship
    • Offshore Diversification
    • Our Latest On Coronavirus ⚠️
  • Making Money
    • International Real Estate
    • Banking
    • Employment
    • Investing
  • CONFERENCES
  • BOOKSTORE
Live and Invest Overseas
  • HOME
  • COUNTRIES
    • Top Destinations
      • Panama
      • Portugal
      • Colombia
      • Northern Cyprus
      • Belize
      • Spain
      • Mexico
      • France
      • Indonesia
      • Vietnam
    • Browse All Countries
    • Best For
      • Retire Overseas Index
      • Health Care
      • Cost of Living
      • Investing in Real Estate
      • Editor’s Picks For Retirement
      • Establishing Residency
      • Starting an Online Business
      • Single Women
      • Playing Golf
  • BUDGETS
    • Super Cheap ($)
      • Cuenca, Ecuador
      • Chiang Mai, Thailand
      • The Philippines
      • Las Tablas, Panama
      • Granada, Nicaragua
    • Cheap ($$)
      • Algarve, Portugal
      • Medellin, Colombia
      • Boquete, Panama
      • Carcassone, France
      • Buenos Aires, Argentina
    • Affordable ($$$)
      • Abruzzo, Italy
      • Barcelona, Spain
      • Las Terrenas, Dominican Republic
      • Puerto Vallarta, Mexico
      • Costa de Oro, Uruguay
    • Luxury On A Budget ($$$$)
      • Ambergris Caye, Belize
      • Paris, France
      • Panama City Beach Area
  • Real Estate
  • ARCHIVES
    • Living & Retiring Overseas
    • Raising A Family Abroad
    • Foreign Residency & Citizenship
    • Offshore Diversification
    • Our Latest On Coronavirus ⚠️
  • Making Money
    • International Real Estate
    • Banking
    • Employment
    • Investing
  • CONFERENCES
  • BOOKSTORE
No Result
View All Result
Live and Invest Overseas
No Result
View All Result
Home Mailbag

How To Do A 1031 Like-Kind Exchange Of Foreign Real Estate

1031 Exchange Rules: What Foreign Investors Need To Know

Live And Invest Overseas by Live And Invest Overseas
Feb 15, 2021
in Mailbag
0 0
0
Man bookkeeper working with bills pay taxes online using laptop

Alamy/Aleksandr Davydov

323
SHARES
4.6k
VIEWS
Share on FacebookShare on Twitter

Section 1031 of the United States Tax Code establishes provisions that allow a taxpayer to defer capital gains taxes when he or she sells investment or business property in exchange for another “like-kind” property. Specifically, IRC Section 1031(a)(1) states:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

To qualify for a 1031 Exchange tax deferral you must follow specific rules and meet certain time frames.

What is Considered “Like-Kind” Property?

First, only investment or business property is eligible under Section 1031, not a personal residence (with a few exceptions as noted below). The business property can be any tangible asset such as equipment or real estate, but the swap must involve the same type, nature, or character of property. For example, you can exchange a piece of equipment for a different piece of equipment, or an apartment building for a rental townhouse, but you cannot exchange equipment for real estate under Section 1031.

The Internal Revenue Code specifically notes that property located in the United States cannot be exchanged for property located outside the country under Section 1031. However, you can sell a foreign property and reinvest the proceeds in a new foreign property and defer all capital gain taxes.

For our readers, this article will focus on the exchange of one foreign property for another foreign property and discuss when a 1031 Exchange may be beneficial.

Is A 1031 Exchange A Good Option?

Before you arrange a 1031 Exchange, you need to consider if the tax deferral is worthwhile under the circumstances. As a U.S. citizen, you are obligated to report any worldwide capital gains on your U.S. tax return, and depending on your filing status, you may be required to pay substantial tax on those gains.

When you sell a property in a foreign country for a profit, you will probably have to pay tax on the capital gains from the sale in that country. A few countries do not assess capital gains tax so it’s important to ask a tax professional before starting the exchange process.

The IRS allows for a tax credit against capital gains taxes paid in another country to avoid double taxation. Depending on the amount of tax paid overseas, it may be more beneficial to use the IRS tax credit when you sell and avoid the tax altogether, rather than doing a 1031 Exchange and deferring the U.S. taxes to a future time. Again, a qualified tax professional can review your specific circumstances to help you make the best decision possible.

Also, you should consider the cost of doing a 1031 Exchange against your potential tax credit or deferral benefit. These transactions are fairly straightforward in the States, but when foreign properties are involved, you could pay US$1,500 or more to ensure it is done properly.

1031 Rules and Deadlines

The goal under a 1031 Exchange is to swap one investment with another similar investment of equal or greater value without receiving taxable cash or realizing capital gains. This allows your investments to grow tax-deferred until a time when you can reduce or eliminate your tax burden. Also, there is currently no limit on how many times you can do a 1031 Exchange and continue to defer your tax obligation.

First, you must find a suitable like-kind property that you want to purchase. Then you must retain a Qualified Intermediary to handle the funds and the exchange. You must have held the property you want to sell/exchange only for investment purposes (not for quick resale or personal use) and it’s recommended to own the property for at least two years before the sale.

The replacement property must be of equal or greater value than the property being sold and you must identify the replacement property subject to the 1031 Exchange within 45 days from the date you sell the first property. The purchase of the replacement property and the 1031 Exchange must be completed within 180 days of the first property’s sale date.

During the time between the sale of the first property and the purchase of the replacement property, you cannot take possession of the sale proceeds or control them in any way. The Qualified Intermediary must be in control of those proceeds and apply them to the purchase of the replacement property to qualify the funds for tax deferral under Section 1031.

Section 1031 Exceptions

Just like most provisions of the Internal Revenue Code, there are several exceptions to Section 1031. In certain circumstances you can use your primary residence for an exchange and a vacation home could qualify in special situations.

Your situation is unique and you don’t want to make a mistake when dealing with taxes and the IRS. Due to the complexity of these tax rules, you should consult a professional about your specific circumstances.

Tags: 'Foreign Real Estate''real estate'1031 Exceptions1031 Rules
Share129Tweet81
Live And Invest Overseas

Live And Invest Overseas

Live and Invest Overseas is the world's savviest source for top opportunities to live better, retire in style, invest for profit, do business, and own real estate overseas. Established in 2008, the Live and Invest Overseas' editors and correspondents have more experience researching and reporting on top opportunities for living well, investing for profit, doing business, and owning real estate around the world than anyone else you'll find.

Related Posts

Nohoval Cove, Kensale, County Cork, Ireland
Ireland

The Pros And Cons Of Living And Retiring In Ireland

by Live And Invest Overseas
May 26, 2021
0

“This question is directed to both Kathleen and Lief. “Thank you so much for your recent article about Lahardan House in...

Read more
Nazaré beach resort, Estremadura, Portugal

Retire To The Silver Coast Of Portugal

February 18, 2021
Aerial view of Fortress Vila Vella and Badia de Tossa bay at summer in Tossa de Mar on Costa Brava, Catalunya, Spain

Low-Humidity Retire Overseas Options

January 2, 2021
Assisted Living

Assisted Living In Panama

December 11, 2020
Boa constrictor imperator

Malaria, Dengue, Bugs, Spiders, And Snakes In Panama

December 9, 2020
Establishing Retirement Residency In Portugal - Lagos

Establishing Retirement Residency In Portugal

July 6, 2016
The Tax Advantages of Operating A Business Offshore can be plenty in a country like Panama.

How To Live Tax Free In Panama

June 1, 2016

Start Your New Life Today, Overseas ...

A world full of fun, adventure, and profit awaits! Sign up for our free daily e-letter, Overseas Opportunity Letter, and we'll send you a FREE report on the 10 Best Places To Retire In Style Overseas Today.

LIOS Resources


  • New To LIOS
  • Ask An Expert
  • Media Center
  • Contact Us
  • FAQs

Quick Links


  • Best Places To Live
  • Best Places To Retire
  • Finding A Job Overseas
  • Real Estate

Sign up for our free daily e-letter, Overseas Opportunity Letter, and get your FREE report: The 10 Best Places To Retire Overseas In 2023

  • About Us
  • Contact Us
  • Privacy Policy
  • Terms
  • Unsubscribe

© 2008-2023 - Live and Invest Overseas - All Rights Reserved.

No Result
View All Result
  • Home
  • Countries
  • Budgets
  • Archives
  • News
  • Events
  • Bookstore
  • Newsletters
  • About Us
  • Members Area
  • Contact Us

© 2008-2023 - Live and Invest Overseas - All Rights Reserved.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Download your FREE report on

The Best Places To Retire In 2023

New Year, New You, New Life Overseas

Sign up for FREE and learn how to live the good life on a modest budget, find bargain property, and more. Plus, check out our free report on the 10 BEST PLACES TO RETIRE.

RETIRE OVERSEAS AND LIVE LIKE ROYALTY