Under U.S. tax law, a 1031 exchange requires that both the relinquished and replacement properties be located within the United States. U.S. real property and foreign real property are not considered like-kind to each other and cannot be exchanged. However, foreign investors who own U.S. real property can participate in 1031 exchanges for other U.S. properties, and special FIRPTA withholding rules apply to foreign sellers.
The Like-Kind Rule for International Properties
Under IRS rules, U.S. real property is not considered like-kind to foreign real property. This means you cannot exchange a U.S. property for a property located outside the United States. However, foreign investors who own U.S. real property can participate in 1031 exchanges for other U.S. properties.
- U.S. property must be exchanged for U.S. property
- Foreign property must be exchanged for foreign property
- Foreign investors can exchange U.S. properties within the U.S.
- FIRPTA withholding rules apply to foreign sellers
FIRPTA and Foreign Investors
Foreign investors selling U.S. real property are subject to FIRPTA withholding requirements. A 1031 exchange can defer the FIRPTA withholding obligation, but the exchange must be properly structured. We work with international clients and their tax advisors to ensure full compliance.
Frequently Asked Questions
No. Under IRS rules, U.S. real property and foreign real property are not considered like-kind to each other. A 1031 exchange requires that both the relinquished and replacement properties be located within the United States.