Can I use a 1031 Exchange to Buy Foreign Property Outside of the United States?
Understanding 1031 Exchange Restrictions
A 1031 Exchange offers a way to invest in real estate while avoiding capital gains taxes. However, there are limitations on the types of property allowed in an exchange, especially when it comes to foreign property in 1031 Exchanges.
Key Takeaways
- A 1031 exchange cannot be used to purchase foreign property — the replacement property must be located within the United States.
- Property in any U.S. state qualifies as like-kind to property in any other state, but international real estate is excluded entirely.
- Investors wanting to hold international real estate must do so as a separate investment outside of a 1031 exchange structure.
- International investments come with unique legal considerations, such as the potential need for trusts or other protective structures.
- Attempting to include foreign property in an exchange would disqualify the transaction from 1031 tax deferral treatment.
Can You Buy International Property with a 1031 Exchange?
A common question is whether you can buy international property through a 1031 Exchange. For example, someone might want to sell a Texas property and reinvest in a Mexico apartment complex. While this idea might make sense for your investment goals, you can’t legally use a 1031 Exchange for it.
1031 Exchange Property Requirements
To qualify for a 1031 Exchange, the replacement property must be within the United States if you are selling domestic property. You can purchase real estate in any state, but foreign properties do not qualify. For example, if you want to sell your Texas property and buy a ski lodge in Aspen, we can facilitate the exchange because both properties are US-based and not foreign property.
Investing in International Real Estate Outside a 1031 Exchange
If you plan to invest in international real estate, you must do so outside a 1031 Exchange. International investments come with unique considerations, and our attorneys can guide you through them. Of course, navigating the complexities of 1031 Exchange foreign property is best done with expert advice.
For instance, you may need to set up specific legal structures, like trusts, to protect your investment abroad. If you’d like help exploring your options, call us at (888) 508-1901. We’re here to support your goals before you sign any contracts.
Disclaimer: This content is for informational purposes only and does not constitute legal or tax advice. Consult your tax advisor or attorney for advice specific to your situation.
Chris Peterson — Texas Licensed Attorney & Founder, WealthBuilder 1031
Chris is the Owner and President of WealthBuilder 1031 and a licensed Texas attorney. He graduated from Wheaton College and the University of Texas School of Law and speaks regularly to realtors, accountants, and title companies about 1031 exchanges. Learn more →
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