Exchanges of Foreign
Foreign real property and real
property situated in the United States are not considered like-kind
per Treasury Reg. §1.1031(h) and will not qualify for tax deferral if
foreign property is exchanged for U.S. property or vise versa.
However, foreign real property may be exchanged for other foreign real
property and any gain deferred under the provisions of section 1031.
This provision is especially important if the foreign country in which
the relinquished property is situated does not tax the gain.
United States citizen and permanent residents are taxed on their
worldwide income regardless of where they are resident for tax
purposes. If the foreign country does not tax the gain on the
sale of the property then there will be no foreign tax credit to net
against U.S. capital gains tax and only an exchange will eliminate
U.S. tax in the year of the transaction.
Please note that for purposes of
the section 1031 rules real property situated in the U.S. Virgin
Islands are considered property situated in the United States per
Private Letter Ruling 9038030.
For more information on this matter or if we
may be of further assistance please contact us for a free consultation
by calling us at 1 (800) 781-1031
or (714) 939-1031 or
by e-mail at
Security investments offered
through Sandlapper Securities, LLC. (Member FINRA, SIPC)