Can I Use a 1031 Exchange for Foreign Property?

Yes, but only for foreign property in exchange for other foreign property. What you can't do is cross the border in either direction. U.S. real estate and foreign real estate are not like-kind to each other.

The rule in plain terms

• U.S. for U.S.: allowed. This covers every exchange we handle.

• Foreign for foreign: allowed, as long as both properties are held for investment or business use. We do not handle foreign exchanges.

• U.S. for foreign, or foreign for U.S.: not allowed. Selling a rental in California and buying a rental in Mexico, Canada or anywhere else outside the U.S. can't be done as a 1031 exchange.

For this purpose, a few U.S. territories, including Guam, the U.S. Virgin Islands and the Northern Mariana Islands, are treated as part of the United States. Other territories, including Puerto Rico, can be treated differently, so check with your CPA if one is on your list.

Why foreign-for-foreign exchanges are less common

The U.S. rules allow them, but they're more complicated in practice. The country where the property sits has its own tax rules on the sale. Some countries tax the gain regardless of what the U.S. allows, and some require withholding when a foreign owner sells. A U.S. exchange doesn't change any of that.

You'll also have additional U.S. reporting for foreign income and assets. Before starting a foreign-for-foreign exchange, you'll want a CPA or tax attorney who works with international real estate involved from the beginning.

What if you want to move your investment overseas?

If you're selling U.S. property and want to invest abroad, a 1031 exchange won't get you there. The sale will be taxable in the U.S. like any other sale. Your CPA can walk you through the tax impact and any options that fit your situation.

If you'd rather keep your gain deferred, the exchange has to stay in the U.S. Many investors in that position look at U.S. markets they haven't considered before, or at passive options like Delaware Statutory Trusts, which hold U.S. property.

Questions about your exchange?

If you're weighing a sale and aren't sure how the rules apply, reach out before you go under contract. We can walk you through the exchange side and how timing works.

APX 1031 is a Qualified Intermediary. We don't provide tax or legal advice; talk with your CPA or attorney about your situation.