Exchanges of Foreign Property      

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

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