Exchanging Foreign Real Estate

Is it possible to exchange real estate in the U.S. for real estate located in another country? Internal Revenue Code Section 1031(h)(1) says that real estate located in the United States and real estate located outside of the United States are not like kind. In order to trade properties in a 1031 exchange, the relinquished and replacement properties must be like kind; therefore, you cannot trade real estate located outside the U.S. for real estate located in the U.S. exchange purposes, “United States” includes all 50and the District of Columbia.

The Regulations and several Private Letter Rulings have expanded this general rule. In certain circumstances, you can trade U.S. real estate for real estate located in Guam, the Northern Mariana Islands, or the U.S. Virgin Islands. Regs. § 1.932-(g)(1)(ii)(E); § 1.935-(c)(1)(ii)(E); Ltr. Ruls. 9038030,200040017.

What can you do?

• You can trade real estate located in any state in the U.S. for real estate located in that same state or any other state in the U.S.
• You can trade foreign real estate for foreign real estate.

There can be complications when trading foreign real estate, such as converting different currencies. However, as long as you trade foreign real estate for foreign real estate, you should be able to do a 1031 exchange because the properties will be like kind.

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