Can a foreign person do a 1031 exchange?

A 1031 exchange is available to foreign sellers of real property held for productive use in a trade or business, or held for investment purposes, however, the foreign status of the person or entity selling the real property can cause some extra complications which must be addressed.

Can foreign investors participate in 1031 tax deferred exchange?

Can a Foreign Investor Participate in 1031 Like-Kind Exchange? Like US residents, foreigners can participate in so-called Like-Kind Exchanges under IRC code Section 1031 (“1031-Exchange”) upon sale of US real property interest.

What is Section 1031 of the Internal Revenue Service?

IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.

What are the IRS rules for a 1031 exchange?

Generally, if you make a like-kind exchange, you are not required to recognize a gain or loss under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, you must recognize a gain to the extent of the other property and money received.

Who is exempt from FIRPTA?

The Internal Revenue Code (Code) provides the exemption to FIRPTA withholding titled “Residence where Amount Realized does not exceed $300,000”. This exemption from FIRPTA withholding is applicable if the transferee is acquiring the USRPI as a residence and the amount realized is $300,000 or less.

What is a FIRPTA withholding certificate?

A withholding certificate is an application for a reduced withholding based on the gain of a sale instead of the selling price. If 15% of the selling price is more than the tax you will owe on this sale, then a withholding certificate may be ideal for you.

What is the FIRPTA withholding tax?

FIRPTA is a tax law that imposes U.S. income tax on foreign persons selling U.S. real estate. Under FIRPTA, if you buy U.S. real estate from a foreign person, you may be required to withhold 10% of the amount realized from the sale. The amount realized is normally the purchase price.

Who can handle 1031 exchange?

qualified intermediary
A qualified intermediary (QI) must facilitate a 1031 exchange. The QI is a person who holds funds from the relinquished property and uses them to acquire the new replacement property. These funds never come into contact with the property owner, who is involved in the 1031, per the IRS 1031 rules.

Do resident aliens pay FIRPTA?

FIRPTA applies to all foreign persons, foreign corporations, and foreign partnerships, selling or transferring property located within the United States. FIRPTA does not consider resident aliens to be foreign persons.

Does FIRPTA apply permanent residents?

A foreign person is defined for FIRPTA purposes to mean any person other than a United States person. A resident alien is defined as 1) one who has lawful permanent resident status (green card holder), 2) meets the substantial presence test (183 day test), or 3) made a first year election to be taxed as U.S. resident.

When does section 1031 apply to a property exchange?

A transition rule in the new law provides that Section 1031 applies to a qualifying exchange of personal or intangible property if the taxpayer disposed of the exchanged property on or before December 31, 2017, or received replacement property on or before that date.

Is there an exception to IRC Section 1031?

IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.

Can a loss be recognized under Section 1031?

You can’t recognize a loss. Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.

Who is eligible for a 1031 tax deferral?

Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.