Can exchanges involving foreign properties qualify for 1031 Deferred Exchange Treatment?
Exchange Parties may exchange properties throughout the United States. The Exchange Party may relinquish in California and acquire in Montana, relinquish in Florida and acquire in Texas, etc. When taxpayers relocate within the United States, they can “take” their investment properties with them via an exchange. Prior to 1989, Exchange Parties were able to perform an exchange of a United States property for a foreign investment property, such as a rental unit in France. However, after the Revenue Reconciliation Act of 1989, the Code now states, “real property located in the United States and real property located outside the United States are not like-kind.” It is unclear what property is “located in the United States”. There is some indication that property in the Virgin Islands may qualify. Perhaps this could be extrapolated to include Guam, Puerto Rico, etc. It is clear that taxpayers may not obtain Section 1031 tax deferrals when they relinquish in Alabama and acquire in Costa Rica
