A 1031 Exchange is a great way to invest in real estate without incurring capital gains taxes. However, there are some restrictions on what types of property can be exchanged.
One common question we get is whether it is possible to buy international property as part of a 1031 Exchange. For example, a client may wish to sell an investment property in Texas and reinvest the proceeds into an apartment complex in Mexico.
While we never wish to discourage such a move if the overall investment is right, you can't legally use a 1031 Exchange to defer capital gains taxes on the transaction.
In order to qualify for a 1031 Exchange, the replacement property in question must be located within the United States. This means that you can purchase property in any state, but you cannot use a 1031 Exchange to buy property in another country.
If the client instead came to us and said they were looking to sell their property in Texas and buy a ski lodge in Aspen, we'd be able to facilitate that transaction because both sides of the deal are US-based.
So, if you are looking to invest in international real estate, you will need to do so outside of a 1031 Exchange. There may be other considerations to take into account when it comes to investing in international real estate that our attorneys can help you work through before you make any decisions (such as creating trusts). If you'd like to work through your options before signing contracts, please feel free to contact us at (888) 508-1901.
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