Exchanges of Real property located outside the U.S. are like-kind for purposes of the like-kind exchange rules under 1031. Property located in the US Virgin Islands and Guam is considered to be in the United States. For exchanges of tangible business assets, the locale of the use of the property determines whether it is used predominantly outside the U.S. or inside the U.S. If property is used outside the U.S., it must be matched to personal property used predominantly outside the U.S. to qualify as like-kind. In the case of intangible assets, they are used where the property is licensed to be enjoyed.
If you are a resident alien, such as a green card holder, sale of property overseas will be subject to U.S. taxation unless you treat the transaction as an exchange. U.S. Corporations doing business overseas that are taxed on their income through Subpart F can defer their income taxes due on the sale of foreign assets.
Reverse Exchanges are very difficult to affect outside the U.S. due to restrictions on U.S. nationals owning foreign sites real estate. Give yourself plenty of time to affect this type of exchange because very few, if any, overseas advisors have ever heard of Section 1031 exchanges, including branches of U.S. professional services entities. They will assume that this is another tax scam that you have cooked up. It takes time to establish Bank accounts and decide what currency the proceeds will be held in.
The predominant use of any tangible non-real estate asset sold in an exchange is determined for the two-year period ending on the date of the sale and must continue in the same use (i.e., foreign or domestic) for the 24 months immediately after the exchange. Property used within and without the U.S. that is eligible for accelerated depreciation as if used in the U.S. is treated as used predominantly in the U.S. Property described in Code Sec. 168(g)(4) that is actually used predominantly outside the U.S. can be exchanged for property used predominantly within the U.S.
If you are subject to taxation on foreign assets, a foreign exchange is right for you.
Call our office at (513) 412-3481 or toll free at (800) 427-7212; our exchange coordinators are ready to discuss whether this type of exchange is right for you and how to get started. You may want to have your project details handy when we discuss your potential Foreign Asset Exchange.